FIN 101 Assignment

Group name: Tetra pack

Group members: Tamanna Shabnam (ID# 2014-1-30-

036)

Nafis Imtiaz Rahman (ID#2014-1-30-025)

Nasrullah Khan Abid (ID#2014-2-10-262)

Asif Faisal (ID#2014-2-10-267)

Section: 6

Course instructor: Maruf Rahman Maxim

Introduction
Financial system is a system which tones up the savings-investment process of a country.
Financial system plays a significant role in the economic development of a country. The
importance of an efficient financial sector lies in the fact that, it ensures domestic resources
mobilization, generation of savings, and investments in productive sectors. In fact, it is the
system by which a country’s most profitable and efficient projects are systematically and
continuously directed to the most productive sources of future growth. The financial system not
only transfers funds from savers to investors, it also selects projects which will yield the highest
returns, accumulates sufficient quantities of capital to fund the range of investment projects
across economic activities, accounts for price risks across assets, monitor performance, and
enforce contracts
The formal sector of the financial system of Bangladesh comprises two sub-sectors

1. Financial Market
F in a n cia l m a rk e t
2. Regulators & Institutions
Financial market
There are three types of financial markets in Bangladesh. They are:

Money Market : Banks, Non-

bank Financial Institutions,
and Primary Dealers

Money Market : Banks, Non-

bank Financial Institutions,
and Primary Dealers

Foreign Exchange Market:

Authorized Dealers.
Types of Banks in Bangladesh:
Banks
Scheduled
Banks
The definition of the types of banks:
Scheduled Banks
The banks which are operated under
full control and supervision of
Bangladesh Bank and get license to
operate under through Bangladesh
Bank Order, 1972 and Bank
Company Act, 1991 are called
scheduled banks.
There are 56 scheduled banks in
Bangladesh
There are 6 categories of
scheduled banks
Non
Scheduled
Banks
Non Scheduled Banks
The banks which are established
for special and definite objective
and operate under the acts that
are enacted for meeting up those
objectives, are termed as Non-
Scheduled Banks. These banks
cannot perform all functions of
scheduled banks.
There are 4 non scheduled banks
in bangladesh.Example: Ansar
VDP Unnayan Bank,
Karmashangosthan
Bank,Probashi Kollyan
Bank,Jubilee Bank
The 6 categories of Scheduled Banks:

State Owned Commercial Banks (SOCBs)

There are 6 SOCBs which are fully or majorly owned by the Government of
Bangladesh.Example:Agrani Bank Limited,Sonali Bank Limited.
Specialized Banks
2 specialized banks are now operating which were established for specific
objectives like agricultural or industrial development. These banks are also fully
or majorly owned by the Government of Bangladesh.Example:Bangladesh Krishi
Bank,Rajshahi Krishi Unnayan Bank (RAKUB).
Private commercial Banks (PCBs)
There are 39 private commercial banks which are majorly owned by the private
entities. PCBs can be categorized into two groups:

Conventional Islami Shariah

PCBs
31 conventional PCBs are now
operating in the industry. They
perform the banking functions in
conventional fashion i.e interest
based operations
based PCBs
There are 8 Islami Shariah based
PCBs in Bangladesh and they
execute banking activities according
to Islami Shariah based principles
i.e. Profit-Loss Sharing (PLS) mode.

Example:The City Bank Example:Al-Arafah Islami

Limited,Dutch-Bangla Bank Limited,EXIM Bank
Bank Limited. Limited.

Foreign Commercial Banks

9 FCBs are operating in Bangladesh as the branches of the banks which are
incorporated in abroad.Example:Standard Chartered Bank,Bank Al-Falah Limited.
Interest rates (deposit) of the banks:
Table 1 Interest Rates (deposit) of scheduled banks in Bangladesh

25.00
SND crore< SND 3 6 1year 2years FD
Type of Savings SND< <25.0 SND< ≥100. months months <FD< <FD< ≥3
scheduled Deposit 1.00 0 50.00 00 <FD<6 <FD<1 2 3 yea
bank Examples rate crore crore crore crore months year years years rs
Agrani
Bank
SOCBs LTD. 3 3.5 3.5 3.5 3.5 5 5.25 5.5 0 0
Sonali
Bank
  LTD. 4 4 4 4 4 5 5.25 5.5 5.5 0
Banglades
h Krishi
SBs Bank 4.00-5.00 4 4 4 4 5 5 5.25 5.5 0
5.00-7.00 6.00- 7.00- 7.00- 6.00
7.00 10.80 10.80 -
  RAKUB 4 4 4 4 4 7.00
2.50-4.50 2.5 4 4.5 6.5 6.5 5.00- 5.00- 6.00- 6.50
Conventio The City 5.50 5.50 6.50 -
nal PCBs Bank LTD. 7.78
Dutch 0.00-4.00 2 3 3 3 3 3.50- 4.00- 4.50- 4.50
Bangla 4.00 4.50 5.00 -
  Bank LTD. 5.00
Islami 4 3.5 3.5 3.5 3.5 3.5 6.00- 6 6.00- 6.5
Shariah 6.50 7.00
based EXIM
PCBs Bank LTD
Al-Arafah 3 3 3 3 3 3 5.5 5.75 6 6
Islami
  Bank LTD.
Standard 0.75-5.00 1.25 1.25 1.25 2 2 2.25- 3.00- 3.50- 4.50
Chartered 3.75 4.00 5.00 -
FCBs Bank 6.50
Bank Al- 3.50-4.75 2.5 2.75 2.75 2.75 2.75 4.75 5 5.00- 5
Falah 5.50
  Limited.
Interest rates (loan) of the banks:
Table 2 Interest Rates (loan) of scheduled banks in Bangladesh

Ter Working
m Capital to
Ter
Loan Industry
m
Sub to Larg Smal Cons
Loan Trad Cred
Type of - Agric large e& l Ex ume Cred
to e it to Othe
scheduled Examples cat ultur & Medi Indu po r it
smal finan NBFI rs
bank ego e medi um stry rt credi card
l cing s
ry um Scal t
Indu
scale e
stry
indu Indu
stry stry
SC. 9 12 12 13 13 7 13 14 0 9.00- 11.50
Agrani 1 12.00 -
SOCBs Bank LTD. 14.00
SC. 0 0 0 0 0 0 0 0 0 0 0
    2
SC. 4.00- 13 13 13 13 7 13.00 13.5 0 11 0
Sonali Bank 1 10.00 -
  LTD. 13.50
SC. 0 0 0 0 0 0 0 0 0 0 13
    2
Bangladesh SC. 10 0 0 0 0 0 13 14 0 0 0
SBs Krishi Bank 1
SC. 0 13 13 13 13 7 0 0 0 0 9.00-
    2 14.00
SC. 10 14 14 13.00 13.00 7 14 14 0 11.00 14
1 - - -
  RAKUB 14.00 14.00 14.00
SC. 8.5 10.00 15 10.5 11.50 7 12 11 34.5 19 19
Convention The City 1 - -
al PCBs Bank LTD. 11.50 12.50
SC. 0 0 0 0 0 0 12 11.5 34.5 0 8.5
    2
Dutch SC. 7.00- 9.00- 10.00 9.00- 9.50- 7 10.50 11.00 18 8.50- 10.00
Bangla Bank 1 10.00 12.00 - 12.00 12.50 - - 11.50 -
  LTD. 13.00 13.50 13.00 13.00
SC. 7.00- 9.00- 0 9.00- 0 0 0 0 0 0 7.00-
    2 10.00 12.00 12.00 10.00
Islami SC. 10 12.00 12.00 12.00 12.00 7 12.00 12.00 30 12.00 12.00
Shariah EXIM Bank 1 - - - - - - - -
based PCBs LTD 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00
Al-Arafah SC. 10 11.00 11.00 11.00 11.00 7 11.00 12.00 0 0 10
Islami Bank 1 - - - - - -
  LTD. 14.00 14.00 14.00 15.00 15.00 15.00
SC. 10 11.00 11.00 11.00 11.00 7 11.00 12.00 0 0 10
2 - - - - - -
    14.00 14.00 14.00 15.00 15.00 15.00
Standard SC. 5.00- 8.00- 13.00 6.00- 10.00 7 9.00- 9.00- 0 5.25- 3.80-
Chartered 1 8.00 11.00 - 9.00 - 12.00 12.00 8.25 6.80
FCBs Bank 16.00 13.00
SC. 0 8.00- 13.00 6.00- 10.00 0 9.00- 9.00- 30.00 5.25- 3.80-
2 11.00 - 9.00 - 12.00 12.00 - 8.25 6.80
    16.00 13.00 33.00
Bank Al- SC. 10 8.00- 11.00 6.00- 10.00 7 10.00 0 0 6.00- 0
Falah 1 11.00 - 9.00 - - 9.00
  Limited. 14.00 13.00 13.00
Money Market in Bangladesh:

The Money Market is an instrument of the fixed income market. The difference between the
money market and the bond market is that the money market specializes in very short-term debt
securities (debt that matures in less than one year). Money market investments are also called
cash investments because of their short maturities, and their near-liquid nature (almost
immediate access upon request). Money market securities are essentially IOU's issued by
governments, financial institutions, and large corporations. These instruments are very liquid and
considered extraordinarily safe. Because they are extremely conservative, money market
securities offer significantly lower return than most other securities.

Government T-Bill
Treasury Bills, one of the safest money market instrument, are short term borrowing instruments
of the Central Government of the country issued through the Central Bank. They are zero
risk instruments. It is available both in the primary market as well as secondary market. T-bills
are short-term securities that mature in one year or less from their issue date. They are issued
with three-month, six-month and one-year maturity periods. Bangladesh Bank treasure bills are
issued in one three, six, twelve month and two-year maturity. They pay a set amount at maturity.

Commercial Paper:
Commercial paper is short term debt instruments issued by well known, credit worthy firms. It is
generally not issued in Bangladesh. But only types of commercial papers available are- the bills
of exchange and promissory notes, mutual funds etc. Commercial paper is usually traded in
primary market.

Banker Acceptance:

A banker's acceptance, or BA, is a promised future payment, or time draft, which is accepted and
guaranteed by a bank and drawn on a deposit at the bank. The banker's acceptance specifies the
amount of money, the date, and the person to whom the payment is due.

Certificate of deposit:

A certificate of deposit (CD) is a time deposit, a financial product commonly sold in the
Bangladesh and elsewhere by banks and credit unions. Savings Certificate is a savings
mobilization Scheme of the Government.
At present the following savings certificates are sold & encashed from the post office.
  5 -Year Bangladesh sanchayapartra.>( Limit, interest Rate)
 Tin mash ontor munafa vittik sanchayapartra .>Limt, Interest rate, interest in each 3
months interval)
 Pensioner sanchayapartra.>( Limit, conditions, interest rate, interest in each 3 months
interval

Repurchase Agreement - Repo

A repurchase agreement (repo) is a form of short-term borrowing for dealers in government
securities. The dealer sells the government securities to investors, usually on an overnight basis,
and buys them back the following day.

Function of money market:

Money market is an important part of the economy. It plays very significant functions. As
mentioned above it is basically a market for short term monetary transactions. Thus it has to
provide facility for adjusting liquidity to the banks, business corporations, non-banking financial
institutions (NBFs) and other financial institutions along with investors.

The major functions of money market are given below:

1. To maintain monetary equilibrium. It means to keep a balance between the demand for
and supply of money for short term monetary transactions.
2. To promote economic growth. Money market can do this by making funds available to
various units in the economy such as agriculture, small scale industries, etc.
3. To provide help to Trade and Industry. Money market provides adequate finance to trade
and industry. Similarly it also provides facility of discounting bills of exchange for trade
and industry.
4. To help in implementing Monetary Policy. It provides a mechanism for an effective
implementation of the monetary policy.
5. To help in Capital Formation. Money market makes available investment avenues for
short term period. It helps in generating savings and investments in the economy.
6. Money market provides non-inflationary sources of finance to government. It is possible
by issuing treasury bills in order to raise short loans. However this does not leads to
increases in the prices.
Non-Bank Financial Institutions in Bangladesh

These represent one of the most important parts of a financial system. In Bangladesh, NBFIs are
new in the financial system as compared to banking financial institutions (BFIs). Non-Bank
Financial Institutions (FIs) are those types of financial institutions which are regulated under
Financial Institution Act, 1993 and controlled by Bangladesh Bank. Now, 31 Non-Bank financial
institutions are operating in Bangladesh. The NBFIs sector in Bangladesh consisting primarily of
the development financial institutions, leasing enterprises, investment companies, merchant
bankers etc. The financing modes of the NBFI’s are long term in nature. In order to ensure flow
of term loans and to meet the credit gap, NBFIs have immense importance in the economy. In
addition, non-bank financial sector is important to increase the mobilization of term savings and
for the sake of providing support services to the capital market. NBFIs appear to offer flexible
options and highly competitive products to help customers meet their operational and financial
goals. So, there must be differences between banking operations and financial institutions
operations, the major difference between banks and FIs are as follows:
 FIs cannot issue cheques, pay-orders or demand drafts.

 FIs cannot receive demand deposits,

 FIs cannot be involved in foreign exchange financing,

FIs can conduct their business operations with diversified financing modes like syndicated
financing, bridge financing, lease financing, securitization instruments, private placement of
equity etc.
If we look upon different products and services of NBFIs we can categorize them according
to the facilities, they give. They are being categorized below and examples of operations
under each categories are also given-

(i) Lease Financing:-

a) Finance or Capital lease
b) Operational Lease
c) Hire Purchase
d) Leveraged Leases
e) Synthetic Leases

(ii) Home Loan & Real Estate Financing

(iii) Short term loan

(iv) Corporate Finance: -
a) Bridge Finance
b) Syndication of large loans
c) Advisory Services
d) Merger and Acquisitions
e) Securitization

(v) Merchant Banking: -

a) Issue Management
b) Underwriting
c) Portfolio Advertisement
d) Corporate Advertising
e) Brokerage Services
f) CDBL services

Now the types of NBFIs will be introduced with examples. Before we do that, we must know
that Out of the total, 2 is fully government owned, 1 is the subsidiary of a SOCB, 13 were
initiated by private domestic initiative and 15 were initiated by joint venture initiative. Major
sources of funds of FIs are Term Deposit (at least six months’ tenure), Credit Facility from
Banks and other FIs, Call Money as well as Bond and Securitization.

(i) Insurance Companies: The insurance sector is regulated by the Insurance Act, 1938 with
regulatory oversight provided by the Controller of Insurance on authority under the Ministry
of Commerce. A total of 31 insurance companies are listed in the capital market of which 8
offer life insurances. Some of the examples are given below-
a) Jibon Bima Corporation (Public Life Insurance Company)
b) American Life Insurance Co (Foreign Life Insurance Company)
c) National Life Insurance Co. Ltd. (Private Life Insurance Company)

(ii) Security Firms: Financial institutions that underwrite securities and engage in related
activities such as securities brokerage, securities trading and making a market in which
securities can trade.

a) Nabiul Karim Securities Limited

b) Haji Mohammed Ali Securities Limited

(iii) Investment Banks: It primarily helps net suppliers of funds transfer funds to net users
of funds at a lowcost and with maximum degree of efficiency.

a) Union Capital Limited

b) First Lease International Limited

(iv) Financial Companies: The primary function of finance companies is to make loans to
both individuals and business. Finance companies provide such services as consumer
lending, business lending and mortgage financing.

a) Industrial Development Leasing Company of Bangladesh (IDLC)

b) GSP Finance Limited

(v) Mutual Funds: Mutual funds are portfolios of different securities such as stocks, bonds,
treasuries, derivatives, etc. Mutual funds are professionally managed investment schemes
that collect funds from small investors and invest in stocks, bonds, short term money market
instruments, and other securities. This ensures a diversified portfolio for the investors at
much less efforts than through purchasing individual stocks and bonds. Examples-

a) ICB Mutual Fund

b) ICB AMCL Unit Fund

(vi) Pension Funds: Pension funds are analyzed as financial intermediaries using a
functional approach to finance, which encompasses traditional theories of intermediation.
Employers, such as companies, public corporations, and industry or trade groups, typically
sponsor pension funds; accordingly, employers as well as employees typically contribute.
Funds may be internally or externally managed. Returns to members of pension plans backed
by such funds may be purely dependent on the market (defined contribution funds) or may be
overlaid by a guarantee of the rate of return by the sponsor (defined benefit funds).

Conclusion
Over all this is the scenario of Bangladesh’s financial market which consists of money
market, capital market, taka and Treasury bond market and foreign exchange market where
we have covered money market which comprises banks and financial institutions as
intermediaries, 20 of them are primary dealers in treasury securities. This money market is a
very integral part of the operation of financial transaction, investment and savings which
further contributes to economic growth.
 References
Bangladesh Bank Website - https://www.bb.org.bd/index.php
http://www.academia.edu/4888183/Financial_System_of_Bangladesh

www.bb.org.bd/fnansys/bankfi.php

www.scribd.com/doc/29065718/Financial-System-in-Bangladesh

http://en.banglapedia.org/index.php?title=Money_Market
http://www.slideshare.net/ArifHasan008/money-market-instrument-in-bangladesh