Financial MArket in Bangladesh

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CONCEPT The term financial market is refers to a conceptual mechanism rather than a physical location or a specific type of organization or structure. It is an arrangement where financial instruments of various natures are transacted. The system comprised of individuals and instruments, institutions and the procedures that bring together borrowers and savers, no matter the location. IMPORTANCE OF FINANCIAL MARKET Financial Market provides unique opportunity to bring borrower and lender together
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  CONCEPT The term financial market is refers to a conceptual mechanism rather than a physical locationor a specific type of organization or structure. It is an arrangement where financial instrumentsof various natures are transacted. The system comprised of individuals and instruments,institutions and the procedures that bring together borrowers and savers, no matter thelocation. IMPORTANCE OF FINANCIAL MARKET Financial Market provides unique opportunity to bring borrower and lender together forefficient use of financial resources. Flow of these resources would have been much lower oreven stagnated in absence of this market. The importance of this market can be understoodfrom the following points.    It provides saving opportunities for the surplus units of the community who have noopportunity or expertise to use those.    Entrepreneurs or business communities short of fund can mobilize required fundthrough these market to finance their activities. Thus the economy becomes moreproductive in terms of manufacturing and financing.    They provide an opportunity to transfer income through time. Thus people with lowerincome can raise their current consumption through borrowing while people withhigher income can sacrifice some of their current consumptions for future which helpsin raising the overall standard of living of the community.    This facilitates capital accumulation of the country. Without this large scale capitalaccumulation would have been impossible.    Security of the payment system and its efficiency has largely been enhanced throughthis market. TYPES OF FINANCIAL MARKET The financial market in Bangladesh is mainly of following types:Money Market: The primary money market is comprised of banks, FIs and primary dealers asintermediaries and savings & lending instruments, treasury bills as instruments. There arecurrently 15 primary dealers (12 banks and 3 FIs) in Bangladesh. The only active secondary  market is overnight call money market which is participated by the scheduled banks and FIs.The money market in Bangladesh is regulated by Bangladesh Bank (BB), the Central Bank of Bangladesh.Capital market: The primary segment of capital market is operated through private and publicoffering of equity and bond instruments. The secondary segment of capital market isinstitutionalized by two (02) stock exchanges-Dhaka Stock Exchange and Chittagong StockExchange. The instruments in these exchanges are equity securities (shares), debentures,corporate bonds and treasury bonds. The capital market in Bangladesh is governed bySecurities and Commission (SEC).Foreign Exchange Market: Towards liberalization of foreign exchange transactions, a numberof measures were adopted since 1990s. Bangladeshi currency, the taka, was declaredconvertible on current account transactions (as on 24 March 1994), in terms of Article VIII of IMF Article of Agreement (1994). As Taka is not convertible in capital account, resident ownedcapital is not freely transferable abroad. Repatriation of profits or disinvestment proceeds onnon-resident FDI and portfolio investment inflows are permitted freely. Direct investments of non-residents in the industrial sector and portfolio investments of non-residents through stockexchanges are repatriable abroad, as also are capital gains and profits/dividends thereon.Investment abroad of resident-owned capital is subject to prior Bangladesh Bank approval,which is allowed only sparingly. Bangladesh adopted Floating Exchange Rate regime since 31May 2003. Under the regime, BB does not interfere in the determination of exchange rate, butoperates the monetary policy prudently for minimizing extreme swings in exchange rate toavoid adverse repercussion on the domestic economy. The exchange rate is being determinedin the market on the basis of market demand and supply forces of the respective currencies. Inthe forex market banks are free to buy and sale foreign currency in the spot and also in theforward markets. However, to avoid any unusual volatility in the exchange rate, BangladeshBank, the regulator of foreign exchange market remains vigilant over the developments in theforeign exchange market and intervenes by buying and selling foreign currencies whenever itdeems necessary to maintain stability in the foreign exchange market.
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