Effects of Basel II Accord on Qatar’s Banking Sector

Comparison of Capital Flows in Asia

Correlation of Capital Flows in Asia 1.1 Background of the Study Capital controls were broadly used to forestall the free progression of assets between nations until the late 1970s. A mindful unwinding of such controls during the 1980s demonstrated predictable with more prominent monetary coordination among cutting edge nations and reinforced the case for capital market opening all the more by and large. By the mid 1990s, capital controls seemed, by all accounts, to be done as a genuine approach apparatus for generally open economies. The traditional view about universal budgetary combination is that it should empower money to spill out of high pay nations, with generally high capital work proportions, to low pay nations with lower capital work proportions. On the off chance that interest in poor nations is compelled by the low degree of residential sparing, access to remote capital should support their development and it would likewise permit inhabitants of more extravagant nations to get more significant yields on their reserve funds contributed abroad. Receptiveness to capital streams can uncover a country’s money related part to rivalry, spike enhancements in residential corporate administration as remote speculators request similar gauges locally that they are utilized to at home, and force discipline on macroeconomic strategies and the administration all the more by and large. In this way, regardless of whether outside capital isn't required for financing, money related transparency, to the two inflows and surges, may make ‘collateral benefits’, for example, residential budgetary division advancement which could upgrade development in all out factor productivity[1]. Capital record progression in monetarily subdued economies frequently prompts a time of quick capital inflows followed by budgetary emergencies with universal monetary combination and strategy motivation for additional advancement of capital inflows. Concern has additionally been communicated with regards to whether the expenses of expan ded helplessness to budgetary delicacy probably won't exceed the increases from money related reconciliation. However, the vast majority of the nations keep on advancing in disassembling capital controls to coordinate their money related markets with the remainder of the world. 1.2 Justification and Relevance of the Study Monetary development is believed to be a component of speculation and different elements. The customary conviction is that remote capital inflows bring new investible assets and outside trade with which the beneficiary nation can accomplish higher paces of speculation and along these lines development. The job of outside capital in monetary development is an issue that has incited ceaseless discussion. Outside capital increases the absolute asset accessibility in a nation, yet its effect on speculation and financial development is disputable. On the off chance that wisely utilized, it could effectsly affect financial development through higher venture and other beneficial outcomes. However, it is likewise conceivable that remote capital venture probably won't yield any net advantage to the host nation. Monetary progression and globalization have brought about fast versatility of assets between countries as to harvest the near bit of leeway of the separate nation. The 1990s saw variou s capital record emergencies in developing business sector economies. The emergencies, which were accelerated by an abrupt inversion of capital inflows, happened against the foundation of budgetary market deregulation, capital record progression, and monetary segment opening. Deregulation and progression have without a doubt achieved benefits as more noteworthy money related asset preparation for residential speculation and financial development. Simultaneously, this has made new wellsprings of vulnerabilities in a critical position sheets of business banks, enterprises, and the open segment. For Countries that are still during the time spent opening the capital record, how best and how quick to continue stays an uncertain issue. There is no assumption that the asset necessities of executing a fast progress are either littler or bigger than those of dealing with a long change process or overseeing capital controls. Creating powerful administrative system requires some investment, ho wever a protracted procedure may make wrong motivations and contortions. An enormous detonation approach might be fitting if a drawn out progress is probably going to make opposition from personal stakes or if various components of the current framework are so needy upon one another that a piecemeal change is beyond the realm of imagination without making noteworthy twists. Worldwide capital developments can bolster long haul development however are not without momentary dangers. The drawn out advantages emerge from a productive portion of sparing and venture among excess and deficiency nations. Be that as it may, enormous capital inflows may challenge the absorptive limit of host nations in the short run by making them helpless against outer stuns, increasing the dangers of monetary overheating and unexpected inversions in capital inflows, and encouraging the development of credit and resource cost blast and-bust cycles. The inflows extended the accessible assets for subsidizing profitable speculations and privatization, and for raising fare limit and helped money current record shortages. They added to the improvement of household money related markets and the productivity of banking frameworks. Remote support in residential government protections markets added to liquidity of auxiliary markets and more noteworthy refinement of money related administr ations, for example, in Hungary and Poland. FDI helps in moving the administrative and mechanical abilities, and reinforce local establishments. For the European Union promotion nations, capital inflows are a commonly fortifying element during the time spent mix into the European Union[2]. The drawn out capital streams, especially of direct venture have been a significant factor in the capital record overflow, and the pattern of higher long haul inflows has proposed to be supported. A significant explanation behind this has been the achievement of alteration programes embraced in Indonesia, Malaysia and Thailand in the mid 1980, after a time of precariousness. In these three nations, an exaggerated cash was deteriorated, huge monetary shortfalls design was rehashed in the Philippines in the mid 1990s. In every one of the four nations, macroeconomic adjustment was joined by strategies to open the economy to remote exchange and change the budgetary sector[3]. As an outcome of the remote capital flood experienced by various creating nations, since the mid 1990s universal financial specialists and arrangement producers have been bantering about whether outside capital streams ought to be the object of explicit strategy. The discussion solidified around two inverse positions. From one perspective, there were the individuals who asserted that capital streams were to a great extent exogenous to the beneficiary nations and, furthermore, very destabilizing. The ramifications of this view was that the financial specialists should plan and execute arrangements to hose the effect of capital streams on local macroeconomic factors. The contrary position withdrew from the supposition that capital streams generally react to residential factors, be they long haul i.e., those influencing the country’s hazard premium, or identified with transient interest the board. In either case, there is no compelling reason to stress unequivocally over capital streams. Strategy producers focus only on improving local approaches. An early, and compelling, examination of the capital flood to creating nations credits it for the most part with the impact of falling universal intrigue rates[4]. There were different factors too, a large portion of them exogenous to rising economies. Specifically, the downturn in created nations decreased paces of profit for capital and made financial specialists search for more significant yields somewhere else. Similarly, since the Asian money related emergency, outside capital has withdrawn from most rising economies, paying little heed to the nature of residential approaches. Now and again, the unexpected stop[5] has been especially horrendous e.g., if there should be an occurrence of Argentina and Chile. In Argentina, the abrupt stop in capital streams made the monetary and budgetary issues. In Chile, it has had less heartbreaking, albeit still very negative, impacts. Be that as it may, in all cases, the in version of the 1990s inflows has been sensational, and it has been joined by a sharp crumbling in development execution. Expanding upon Ricardo, the government assistance gains from the universal parcel of work are generally recognized. The financial arrangement suggestion has been to expel swapping scale unpredictability to encourage exchange and development. The effect of conversion scale unpredictability on exchange among two or a gathering of nations has both a small scale and macroeconomic measurement. From a microeconomic point of view conversion standard instability, for example estimated as everyday or week to week swapping scale vacillations is related with higher exchanges costs since vulnerability is high and supporting remote trade chance is exorbitant. In a roundabout way, fixed trade rates improve universal value straightforwardness as buyers can look at costs in changed nations all the more without any problem. In the event that conversion scale unpredictability is di spensed with, global exchange upgrades proficiency, efficiency and government assistance. These microeconomic advantages of swapping scale adjustment have been an impeding inspiration of the European money related combination process. Low exchange costs assume a significant job for universal and intra-territorial exchange and capital streams. 1.3 Research Questions We have examined above about the need of universal budgetary combination, progression of capital records and potential advantages of capital streams. Numerous nations on the planet opened their capital record to receive the rewards of worldwide capital streams for their financial turn of events and development. Various examinations have been done as such far for the investigation of capital streams on various issues. A few investigations are connected with advantages and advancement of capital record which are: does capital record progression lead to development? by Quinn and Toyoda in 2008; why capital acco

5 British Books to Look For in July

5 British Books to Look For in July July is a little quiet on the British books front in the US. Thats not the case  in the UK, where theres an explosion of exciting-sounding books, but over here across the Pond, publishers seem to be saving those for the autumn or even early next year if theyre buying them at all. Still, theres good ones making it over to the US, and here are some of them. Come Let Us Sing Anyway, by Leone Ross (Peepal Tree Press, 1st July) Leone Ross short fiction has been richly praised, published in multiple anthologies, and translated into Spanish, French and Slovak, but this is her first collection. The stories are set in the UK and Jamaica and vary in length from flash fiction to extended story, and have in common fantastical elements and a refusal to shy away from difficult and complicated subjects, like intense sexuality, social inequality, and the killing of black people by police. The Things I Would Tell You: British Muslim Women Write, ed. Sabrina Mahfouz (Saqi Books, 11th July) Fiction, essays, memoir, poetry, drama: all are present in this eclectic collection which showcases well-known authors alongside emerging writers. They visit Karachi and New York City, explore romantic love and Brexit and a multitude of other places and themes. Adhaf Soueif writes the introduction, and she makes clear that one of the aims of the anthology is to dispel the narrow image of what a Muslim woman and particularly a British Muslim woman looks and lives like. Jane Austen at Home, by Lucy Worsley (St Martins Press, 11th July) Among the plethora of new, bicentennial-hooked Austen books is this unique take on one of Britains most beloved authors, through the prism of the places where she either lived or spent significant time, and how she wrote of home in her novels. Can I Speak to Someone in Charge? by Emily Clarkson (Simon Schuster, 13th July) Heres what Emily herself says about her book of essays in letter form, on topics as diverse as thigh gap and Facebook friends and Lycra: I hope this book will speak to a range of women, and men actually, I hope it will make people laugh, but more importantly I hope it will open peoples eyes to the fact that weve got a lot to do if we want to make growing up in a good and kind world a possibility for our daughters. Tin Man, by Sarah Winman (Tinder Press, 27th July) Ellis and Michael are inseparable as twelve-year-old boys  until Annie walks into their lives. This is an almost-love story if Im being honest, probably my favourite kind of love story by the author of the beloved  When God Was a Rabbit.

Essay on Textbook Analysis the American Journey - 1499 Words

TEXTBOOK ANALYSIS: THE AMERICAN JOURNEY Textbook Analysis The American Journey Michele C. Bennett Grand Canyon University: EED 465 January 22, 2011 Textbook Analysis: The American Journey Before using a social studies textbook, a deep analysis of its contents will be required. How the book covers the topics in comparison to the definition of, social studies bring forth the relevance of the book in effective planning and instruction. Whether or not the book conveys separate classroom activities for class participation and a chance to form a deeper understanding of the lesson is desirable. Furthermore, the book should integrate other subjects such as writing to incorporate a deeper interest in social studies. The textbook†¦show more content†¦The textbook includes a reference atlas and a geography handbook which encourages learning geographic lessons in our American History. Reading skills are the main goal of the textbook’s author, which is apparent with the sections Reading Skills Handbook and the section referred to as Be an Active Reader. The inclusion of art is included at the section two assessments as an Interdisciplinary Activity. On page 26, the activity requires putting together illustrations of ‘accomplishments of the Maya, Aztec, and Inca in the areas of communication, science, and math. Use your own drawings or use photographs from newspapers and magazines’ (Appleby, Brinkley, and McPherson, 2005). On the textbook online access, the integration of technology exists with interactive websites to enhance the learning experiences for social studies students. ‘The more accurately the K–12 social studies program addresses the contemporary conditions of real life and of academic scholarship, the more likely such a program is to help students develop a deeper understanding of how to know, how to apply what they know, and how to participate in building a future. It is within this context that these social studies standards were created. They pay attention to the specific contributions of hist ory, the social sciences, humanities, fine arts, the natural sciences, and other disciplines,Show MoreRelatedBook Review Analysis of the Journals of Lewis and Clark1046 Words   |  5 PagesBook Review Analysis 1. General Information 1.A. The title of the book is The Journals of Lewis and Clark. 2.A. The authors are Meriwether Lewis and William Clark, edited by Bernard DeVoto 3.A. 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However, after reading the novel The Mango Season by Amulya Malladi, one can see that there is definitely more to Indian history than what most are familiar with. To clarify, this novel helps one learn unique aspects of Indian culture that would normally be difficult to comprehend in a classroom environment. The novel centers around the life of Priya RaoRead MoreRecognized Arguments1563 Words   |  7 Pagesconsequently, a daddy-long-legs is not a spider. Deductive Part 2 2a: Argument Analysis and Diagram Research the list and diagram structure using your textbook readings for the module. Apply the method to (a) outline and (b) diagram the arguments in the following longer text passages. Model your answers on the examples of diagramed arguments in the textbook and the sample diagrams provided. Refer to the following argument outline components: The issue hereRead More Women in the Math World Essay1243 Words   |  5 Pagesworked started when she was the age of twenty. 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The Problem Of Human Trafficking - 1283 Words

When it comes to the topic human trafficking, mostly everyone knows that it has a lot of history to its name. According to ben skinner, â€Å" there are more slaves in the world today then ever before†(E. Benjamin pg. xi). There have been many incidents and cases with human trafficking such as, sex trade, smuggling, violence, etc. Today, one can show how real is Human Trafficking. This paper details the big enigma exist todays date, that Human Trafficking is real. Trafficking can happen in almost every country and can be done by threat, transportation, recruitment, transfer and many other ways. According to the book The Slave Next Door, â€Å"Some 14,500 to 17,500 people are trafficked into the United States from overseas and enslaved each†¦show more content†¦(Susan Tiano et al, pg. 3). This crime of smuggling involves, the procurement for financial and other material benefit of a person trying to cross the boarder illegally, (Migrant Smuggling-http://www.unodc.org). Over the past view year’s boarder control has improved with regards to protecting the boarder line. Most of these convicts travel in groups of thirty and make their moves during the nighttime. In addition, to evade national border controls, visa requirements and migration regulation, the convicts gradually provided more smuggling assistance to irregular migrants (Border Wars Season 5 Epsiode 10 Cash and Corruption. 2014). Now and days it is hard for law enforcements to classify a victim or suspect within trafficking, that’s why there are so many cases of people escaping and reporting the situation to the law itself. Furthermore, Drug traffickers, stock manipulators and corporate embezzlers work with a system that is called â€Å"money-laundering†, it’s a way of taking financial things such as money and converting it so it could look real. Money laundering is a â€Å"dynamic process that requires the following: Moving funds from direct association with the criminal activity that generated them; disguising the origins of the money to confuse and frustrate any investigative activity seeking to link and connect illicit money with a particular individuals; and making the

Report on Inflation Free Essays

string(44) " global position of economy of the country\." EVOLUTION OF EXCHANGE RATE REGIME: IMPACT ON MACRO ECONOMY OF BANGLADESH by Liza Fahmida A project submitted in partial fulfillment of the requirements for the degree of Professional Master in Banking and Finance Examination Committee: Dr. Sundar Venkatesh (Chairperson) Dr. Juthathip Jongwanich Dr. We will write a custom essay sample on Report on Inflation or any similar topic only for you Order Now Yuosre Badir Nationality: Bangladeshi Previous Degree: Master in Finance and Banking University of Dhaka Bangladesh Scholarship Donor: Bangladesh Bank Asian Institute of Technology School of Management Thailand May 2012 ACKNOWLEDGEMENT The dissertation paper entitled â€Å"Evolution Of Exchange Rate Regime: Impact On Macro Economy Of Bangladesh† has been prepared for the partial fulfillment of Professional master in Banking and Finance (PMBF) program conducted by School of Management, AIT, Thailand. I would like to offer my wholehearted gratitude and respect to a good number of people who offered encouragement, data and information, inspiration and assistance during the course of constructing this dissertation paper. It would be difficult to prepare the paper and to present it in a lucid manner within stipulated time without the help of my guide teacher Dr. Sundar Venkatesh, Adjunct Faculty, School of Management, Asian Institute of Technology, Thailand. His utmost care, constant support and meticulous supervision guided me through the process. I am indebted to Begum Sultana Razia, General Manager, Monetary Policy Department, Bangladesh Bank, whose sincere co-operation and valuable advice help me to prepare this paper. I would like to thank all of my colleagues and other employees of Foreign Exchange Policy Department and Monetary Policy Department, Bangladesh Bank for their assistance in this regard. I would like to thank all of fellow course mates who contributed through their comments and suggestions to prepare the report in a comprehensive manner. ii ABSTRACT Bangladesh had two different exchange rate regimes- a fixed exchange rate system from January 1972-May 2003 and a floating exchange rate regime since June 2003. After adopting the floating exchange rate regime Bangladesh experienced positive impacts on macro economic development. The variables of the macroeconomic factors have been considered as foreign reserve, workers’ remittances and export proceeds to evaluate the impact of exchange rate over them in this paper. But the ongoing challenges for the country are the depreciating trend in local currency in a highly inflationary economy. The objective of the paper is to evaluate the macroeconomic performance over the regimes and to analyze present currency situation of Bangladesh. iii Table of Content NO. 01 Title page Acknowledgement Abstract Table of contents List of Figures List of Abbreviations Chapter-01 02 1. 1 Rationale 1. Scope 1. 3 Objectives of the study 1. 4 Methodology 1. 5 Limitations 1. 6 Organization 02 Chapter-02 Literature Review 03 Introduction 3. 1 Factors Affecting Exchange Rate 3. 2 Performance of previous and current FX-Regime in Bangladesh rate of GDP 3. 2. 1 Growth Unde 3. 2. 2 Current Account Balance 3. 2. 3 Inflation Situation 3. 3 Justification of Floating Exchange Rate 3. 4 Th e Transition from Fixed to Float 04 Chapter-04 Performance of Floating Exchange Rate System On Macro Economy of Bangladesh 4. 1 The Export On Macro Economy of Bangladesh Situation 4. 2 Enhancement of Workers Remittance 4. Reserve Position 4. 4 The Growth Rate of GDP 13 14 14 15 7 8 8 8 9 10 10 Chapter-03 Exchange Rate Evolution in Bangladesh 7 Introduction 1 1 1 2 2 2 3 3 SECTION Page I ii iii iv V vi iv 4. 5 Relationship among variables 05 Chapter 5 Preset Exchange Rate Situation Preset Exchange Rate Situation 5. 1 Exchange Rate Movement 5. 2 Reasons for Currency Depreciation 5. 2. 1 High Inflation 5. 2. 2 Low Foreign Direct Investment 5. 2. 3 Trade Deficit Chapter 6 06 Recommendation and Conclusion 6. 1. Control Inflation 6. 2. Reduce Trade Deficit 6. 3 Enhancing Foreign Direct Investment 6. 3 Effective Capital Market 6. Short Term Foreign Borrowings 6. 5 Effective Capital Market 6. 6 Derivatives Market 6. 7 Formation of Domestic FX Market 6. 8 Autonomy of the Central Bank 07 08 R eferences Appendix Trade Deficit of Bangladesh Yearly Reserve Position Yearly data of Workers Remittance Yearly data of Inflation Yearly data of Export, Remittance, Reserve and Exchanger Rate Monthly data of Remittance and Exchange Rat Regression Analysis FDI In Bangladesh 16 17 17 17 18 18 19 21 21 21 21 21 21 21 22 22 22 23 24 25 26 27 28 29 30 31 v LIST OF FIGURES TITLE 3. 4 3. 5 4. 1 4. 2 4. 3 4. 4 5. 1 5. 2 5. 3 5. Exchange Rate Movement immediately after inception of Floating Comparison of month end Real Effective Exchange Rate The Export Volume in US$ The Workers Remittance The Foreign Reserve Position (REER) and Nominal Exchange Bangladesh GDP Growth Rate Rate between 2003-2004. Exchange Rate Movement Figure: Inflation Growth Rate of Foreign Direct Investment Trade Deficit of Bangladesh PAGE 11 11 13 14 15 16 17 18 19 20 vi LIST OF ABBREVIATIONS AD ADB BB FDI FPI FX FY GDP IMF LC Authorized Dealers Asian Development Bank Bangladesh Bank Foreign Direct Investment Foreign Port folio Investment Foreign Exchange Financial Year Gross Domestic Product International Monetary Fund Letter of Credit NEER OANDA REER USD Net Effective Exchange Rate Website of exchange rates information. Real Effective Exchange Rate Us Dollar vii Chapter 1 INTRODUCTION At the preamble of the Bangladesh Bank order, 1972, it is stated that â€Å"Whereas it is necessary to establish a central bank in Bangladesh to manage the monetary and credit system of Bangladesh with a view to stabilizing domestic monetary value and maintaining a competitive external par value of the Bangladesh Taka toward fostering growth and development of country’s productive resources in the national interest. To maintain a competitive external par value of the Bangladesh Taka, as per Foreign Exchange Regulation Act, 1947, Bangladesh Bank as a central bank of the country, regulates the foreign exchange on behalf of the government 1. 1 Rationale: Exchange rate indicates the global position of economy of the country. You read "Report on Inflation" in cate gory "Papers" The country’s economic development is closely related with it’s foreign exchange system. Foreign exchange rate is a vital component for the country’s economic activities too. Bangladesh has been experienced the floating exchange rate regime since May 2003 and passed a number of Pons and cons in the overall economy. Due to the utmost importance of the exchange rate in the economy, the study has been conducted in this area. 1. 2 Scope: This paper covers the comparison of the fixed and floating exchange regime of Bangladesh. The key factor of this paper is the evaluation of the impact of exchange rate on the fundamental macroeconomic indicators of the economy. Three main fundamental factors have been identified to measure their impact with exchange rate. Those are export, workers remittance and foreign exchange reserve. The empirical data of 2000 to 2012 has been used to ustify the whole thing. To get an idea about the Bangladesh’s position, some neighboring country’s experience also been compared here. 1. 2 Objectives of the study 1. To evaluate the exchange rate regimes in Bangladesh economy: Fixed and Floating 2 To evaluate the floating arrangement’s performance in three macro economic variables: Export, Workers Remittance and Foreign Reserve. 3 To understand the reason for currency depreciation 1 1. 4 Methodology To obtain the objectives of the study, secondary data have collected. The sources of data are Bangladesh Bank, Board of Investment, Export Promotion Bureau, Websites of IMF, ADB, OANDA and other related links. Statistical analysis correlation has been calculated to understand the exchange rate’s significance on the economic variables of Export, Workers Remittance and Foreign Reserve . 1. 5. Limitations There were some limitations to conduct the study. Being, sensitive, new one, problems were faced to relate with various components and linking with them. And for its very nature, primary data was not available. Since the exchange rate regime is a vast area, it was also challenging to prepare this report within a limited time. 1. 6. Organization There are six chapters in this report. Chapter I is the introduction that divided into six sub sections. Literature Review is in Chapter 2. Exchange Rate Evaluation in Bangladesh has been covered in Chapter 3. Chapter 4 covers Performance of Floating Exchange Rate System On Macro Economy of Bangladesh. Present exchange rate situation is describing in Chapter 5. The last chapter covers recommendation and conclusion. 2 Chapter 2 LITERATURE REVIEW The basic policy variables of country is foreign exchange rate that ensured trade, business, long term funding, foreign direct investment, inflation, foreign exchange reserve, inward remittance etc. Various economists opined that the policy of the exchange rate system had a crucial impact on 1990’s economic catastrophe. Nevertheless, it is yet to be proved either theoretically or empirically regarding the role of exchange rate on the indicators of macroeconomic variables. Whatever the case may be, different countries adopt different exchange rate policies. Bangladesh, the focus of this paper, had a fixed exchange rate system in place since January, 3 1972. After more than 31 years, the Central Bank of Bangladesh (Bangladesh Bank) changed it into a floating exchange rate system in June 2003. Bangladesh has been pursuing a floating exchange rate system since then. Dr. Mirza Azizul Islam, the former advisor, Ministry of Finance of the Caretaker Government of Bangladesh, presented a paper in January 2003, right before the shift from fixed to floating regime, explaining the overall performance of the fixed regime and the probable implications of the floating regime on Bangladesh economy. He suggested that the experiences of other countries in the region show that floating regime generates greater volatility in exchange rates and this sort of uncertainty is likely to affect adversely the overall trade and investment climate which is already afflicted by many unfavorable elements in Bangladesh (See Islam, 2003). Bangladesh pursued a ‘fixed exchange rate’ regime upto 1979. After that, from 1979 to mid-2003, it followed a managed floating exchange rate system. Repeated depression of the home money, for maintaining a steady real exchange rate as well as keeping away from overvaluation of the local taka, were the prime factors for taking new system of the foreign exchange system. From May, 2003, Bangladesh took almost a new policy known as ‘clean floating’ exchange rate policy by creating fully convertible current account. But capital account convertibility is not yet done. The main reasons for all the policies that Bangladesh took were due to improve export situation, decrease import liability with the aim of improving balance of trade. The evidences in favor of the above mentioned opinion have been placed below. Islam( 2003) told that the regulators of the monetary policy decides the exchange rate policy of the country in order to obtain two basic goals. The first one is â€Å"domestic target† that covers preventing inflation rate of inflation, the growth of credit both in Government and Private levels, and also the growth in liquidity and M2. The second reason is â€Å"external target† which considers foreign exchange reserve hike, declining current account balance, prevent exchange rate volatility in the country’s nterbank foreign exchange market as well as balance the exchange rate flow with neighboring countries like India, Bhutan, Sri Lanka, Pakistan etc. Hossain (2005) referreing Rahman and Bayes that Bangladesh took floating exchange rate system due to: (i) global competitiveness; (ii) improve export dimensions ;(iii) eliminate subsidy from export; (iv) reduce import pressure; (v) increa se the substitutes products for export. Aziz (2003) showed that according to the statements of the finance ministers for 3 ast decades, the prime causes of devaluation of taka in our country (i) rise in export;(ii) reduce import;(iii) improve local newborn industries; (iv) promote the inward remittances trough pursue wage earners, and (v) increase foreign exchange reserve. As per the â€Å"Financial Sector Review(2006)’ of the central bank of the country, the major reasons of exchange rate policy covers: (i) export promotion; (ii) encourage inward remittances;(iii) keeping the price level stable, and (iv) preserve a variable account situation externally. As a result, all the publications and write-ups have illustrated both directly or indirectly the export-growth and import reduction as the key reasons of the exchange rate policy of the country. Prior to adopting floating exchange rate regime, Islam (2003) argued that the economic and institutional prerequisites of a floating exchange rate regime are not met in Bangladesh. Some recent studies have tried to explain the behavior of nominal exchange rates of Bangladesh after its transition to the floating rate regime. By doing a correlation analysis, Rahman and Barua (2006) explore the possible explanation of the exchange rate movement. They found that there is a strong correlation (-0. 40) between depreciation and export-import gap as a share of reserves; L/C openings for imports also have a positive correlation (0. 45) with volatility of the exchange rate, which implies that the higher the L/C openings the more volatile is the exchange rate. They conclude that high seasonal demand for foreign currency because of increased import bills, systematic withdrawal of excess liquidity by Bangladesh Bank, relatively faster expansion of credit and higher interest rates on various national savings instruments are the reasons behind the interest rate hike in the money market and depreciation of the nominal exchange rate. William Miles, 2006 discussed about the effect of exchange rate system (both fixed and floating) on the long term growth in the economy. The effect of fixed rate, pegged rate and floating rate has been discussed here briefly on the basis of several literature reviews and the finding is that fixed and intermediate regimes have a clear, significantly negative impact on growth (holds only for emerging markets not for industrial nations. ) In this paper, the author has given an approach to determine if exchange rate regime itself truly extracts an independent effect on growth. Results here indicate that the effect of fixed exchange rates on growth in emerging markets is not direct, but rather contingent on the existence of macroeconomic imbalances and other distortions in place in the domestic economy. These results seem to conform more closely with exchange rate theory, which posits mostly positive, and few negative channels for pegged currencies to impact growth over the long run. Asad Karim Khan, June 2009 examines whether the floating exchange rate regime has any impact on the value of Bangladesh taka i,e does it make any lose on the value of the currency. He shows that regime change has no statistically significant impact on the value of Bangladesh currency once foreign exchange reserve is incorporated in the regression model. Younus and Chowdhury (2006) made an attempt to analyse Bangladesh’s transition to floating regime and its impact on macroeconomic variables. They find that output growth in Bangladesh performed well in the intermediate and floating exchange rate regimes. Inflation is lower in the intermediate regime despite higher money supply and exchange rate depreciation. They also find that currency depreciation boosted export growth in the floating regime. Chowdhury and Siddique (2006) have analysed the exchange rate pass through to domestic inflation in Bangladesh. 4 The experiences of some countries in the region which implemented major changes in their exchange rate regimes in recent years can provide useful lessons for Bangladesh. I have tried to focus the comparison among different economic indicators between Bangladesh and some of the South Asian Countries (Afghanistan, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka) all of which adopted independently floating exchange rate regimes. Trade and financial policy measures are very important for the country’s economy and out of that consideration, Bangladesh has taken a new exchange rate policy according to the obligations of IMF (article number: VIII), as on 24th March,1994 introducing current account fully convertible. At the same time, Bangladesh was under pressure since it is the member of IMF. As a result, Bangladesh took floating exchange rate system in current account on 31st May, 2003. After that, IMF agreed Poverty Reduction and Growth Facility (PRGF) for our country with a new exchange rate system i,e, floating exchange rate system. However, Younus et al (2006) showed that free floating exchange rate system can arrange the prevention of overvaluation of local currency as it might make the export unattractive in the international world as well as alternative items of importable goods became difficult to bit with import goods. He illustrated that the prime goal of free floating system of exchange rate is supposed to avoid the main misalignment of exchange rate, specially, to stop unpredictable appreciation of real rate of exchange that might affect the demand of the total export of the country. The illustrations also included the encouragement of the export situation and decline the shortfall of the current account, control inflationary situation, and increase the position of inward remittances. Since the independence of the country, Bangladesh is following an dynamic exchange rate system that has been replicated in the nominal exchange rate that were declared by the central bank of the country time to time. Islam (2003) stated 89 modifications in the exchange rate of Bangladesh currency with USdollar since 1983 and among them, 83 were depression. Aziz (2003) illustrated 41 depreciation in nine years (1991-2000). Younus et al (2006) showed that 130 times depreciation took place between 1972 to 2002 in Bangladesh Taka that also reduce balance of payment deficit. So, this paper, correctly identifies the exchange rate as the main important thing for economic changes of the country. After independence, Bangladesh fixed its Taka’s value with British Pound Sterling on 3rd 1972. Since 1972 to 1990 the Taka was overvalued. So there was a huge deficit in Balance of payment that hurt the economy badly. From 1990 the gap began to narrow down. The exchange rate regime worked quite well in terms of balance of payment, inflation, export and remittance. So there were some debate about incipience of this floating and criticism also rose about competence and preparation of Bangladesh Bank. But Bangladesh Bank performed well in managing the ‘new born’. But there is some volatility in the market in recent past. Bangladesh Bank, as a central bank of the country intervened prudently to curve the volatility and market became stable though Taka remains undervalued. The experiences of South East and South Asian countries showed that they had to intervene in the market for smooth moving. The experience supports the Mr. Kindleberger beliefs that â€Å"market work well on the whole† but occasionally â€Å"will be overwhelmed and 5 need help† from a lender of the last resort. (The Economist, July 19th 2003). So the regulator should be watchful about the market’s behavior and intervene when needed without hesitations. In the developing country these kind of intervention should be proactive rather than reactive. Naeem and Rasheed analyzed another important issue of whether stock prices and exchange rates are related or not has received considerable attention after the East Asian crises. They said that during the crises the countries affected saw turmoil in both currency and stock markets. If stock prices and exchange rates are related and the causation runs from exchange rates to stock prices then crises in the stock markets can be prevented by controlling the exchange rates. Moreover, developing countries can exploit such a link to attract/stimulate foreign portfolio investment in their own countries. Similarly, if the causation runs from stock prices to exchange rates then authorities can focus on domestic economic policies to stabilize the stock market. If the two markets/prices are related then investors can use this information to predict the behavior of one market using the information on other market. They also claimed that most of the empirical literature that has examined the stock prices-exchange rate relationship has focused on examining this relationship for the developed countries with very little attention on the developing countries. This paper will assess whether the exchange rate regime change indeed has created any significant impact on the economy of the nation as well as the comparative analysis with the neighboring countries situation. There are some potentialities as well as difficulties in market based system, so in this study there are some recommendations for the regulator and for the market players. To manage the floating exchange rate, full automation as well as transparency is essential in banking sector. As the capital account of our economy is not convertible there is little scope of capital flight. If the inception of floating exchange rate is the beginning to liberalize capital account immediately that won’t be a wise decision. 6 Chapter 3 Exchange Rate Evolution in Bangladesh Introduction: The world economy experienced some sort of fixed and flexible exchange rate. Before 1875 there was Bimetalism of exchange rate and then the Gold Standard (1875-1914). During Interwar period (1914-1944) the classical Gold Standard broken down and in July 1944 representatives of 44 countries succeeded to establish the ‘Bretton Woods’ system. Again the oil shock in the early 1970s and the dampen of demand broken down this system and world economy shifted to flexible exchange rate. Bangladesh has been experienced two major exchange rate regimes since the country’s Independence from 16th December1971. A Fixed Exchange Rate Regime from 1972 to 1979 and a Floating Exchange Rate Regime since May 2003. Among the time frame from 1971 to 2003, there were different exchange rate arrangements in terms of the currency mechanism, like: Pegged to Pound Sterling (? :1972-1979;Pegged to a basket of major trading partners’ currencies(? as the intervening currencies):1980-1982;Pegged to a basket of major trading partners’ currencies(US$ as the intervening currencies):19831999;Adjusted Pegged System:2000-2003;Floatig Exchange Rate System: May 30, 2003Present. All the policies of exchange rate system Bangladesh implemented, with the objectives of accelerating exports, reducing import pressure and improve the balance of trade. After independence, Bangladesh fixed its Taka’s value with British Pound Sterling on 3rd 1972. Since 1972 to 1990 the Taka was overvalued. So there was a huge deficit in Balance of payment that hurt the economy badly. From 1990 the gap began to narrow down. The exchange rate regime worked quite well in terms of balance of payment, inflation, export and remittance. 3. 1 Factors Affecting Exchange Rate: Under Floating Exchange Rate Arrangements Exchange Rate is primarily determined by demand for foreign currency and Supply of foreign currency where demand and supply of foreign currency is also affected by some other sensitive factors. According to Jeff. Madura, (International Financial Management) theoretically demand for foreign currency is determined by several factors like, import payments, service payments which includes income payments, debt service payments, foreign investment (outward) and foreign investment (outward). The supply of foreign currency is composed of export Receipt, service receipts which includes income receipts, debt service receipts, foreign aid (inward) and foreign Investment (inward). Besides those some other factors affect the exchange rate movements. The factors are a)Purchasing Power parity; b)Interest rate parity; c) Relative income differential; d)Government Control; e)Expectations etc. 7 3. 2 Performance of previous and current FX-Regime in Bangladesh To evaluate the performance of Bangladesh considering the two different exchange rate regimes, some data comparison have been made among three neighboring countries in South Asia. Those are India, Pakistan and Sri Lanka. 3. 2. Growth rate of GDP Comparing the percentage of growth rate with major neighboring Countries, the following table shows that Bangladesh was more or less in a similar situation before the adoption of floating exchange rate regime. Since 2003 with the new floating exchange rate system, there is also a positive trend of the GDP growth rate except 2009-2010. The global recession affect the overall growth of the country at that time. Table 3. 1: Growth rate of GDP (% per year) Y Country Banglad es h India Pakistan Sri Lanka 2001 5. 3 5. 8 1. 8 -1. 5 2002 4. 4 4. 0 3. 1 4. 0 2003 5. 3 8. 2 5. 1 5. 9 2004 5. 7 7. 4 5. 5 5. E 2005 A 2006 R 200 7 6. 4 9. 2 6. 8 6. 8 6. 0 6. 6 7. 6 9. 7 5. 8 5. 8 5. 5 7. 7 200 8 6. 2 6. 7 3. 7 6. 0 200 9 5. 7 8. 0 1. 2 3. 5 2010 5. 8 8. 6 4. 1 7. 6 2011 6. 3 8. 2 2. 5 8. 0 Source: Asian Development Outlook-2004 and 2011, ADB 3. 2. 2 Current Account Balance In comparison to other major South Asian countries, the table no. -2 shows that Bangladesh’s achievement in terms of containing current account balance is better after the adoption of floating exchange rate regime (since 2003). It has done consistently better than some of the neighboring countries like Sri Lanka, Pakistan, and India in all recent years excepting 2005. Table No. 3. 2 Current Account Balance as Percentages of GDP Y 2003 0. 5 0. 7 5. 9 -2. 2 E 2004 0. 0 0. 3 3. 0 -3. 0 A 2006 1. 3 -1. 2 -3. 9 -5. 3 R 2007 1. 4 -1. 4 -4. 8 -4. 3 Country Banglades h India Pakistan Sri Lanka 1999 -1. 5 -1. 1 -3. 0 -3. 6 2000 -1. 1 -0. 8 -0. 4 -6. 4 2001 -2. 3 0. 2 0. 6 -1. 5 2002 0. 4 0. 8 4. 6 -1. 8 2005 -1. 5 0. 3 2. 1 -3. 5 2008 0. 9 -2. 4 -8. 5 -9. 5 2009 2010 2. 7 3. 7 -2. 8 -5. 7 -0. 5 -3. 0 -2. 2 -3. 8 2011 0. 2 -3. 5 -1. 7 -4. 0 Source: Asian Development Outlook-2011, ADB 8 3. 2. Inflation Situation Exchange rate regime and inflation are relevant because a change in the exchange rate is almost certain to cause a change in the domestic price of tradable and indirectly the price of non-tradable also. The international competitiveness of the economy is badly eroded by inflation. It generally encourages capital flight, exacerbates income distribution, gives rise to inequities in income distribution and aggravates poverty. The relevant data are prese nted in the following table no. -3. Table 3. 3: Inflation in Bangladesh and Selected South Asian Countries Y 2002 200 3 2. 8 4. 4 3. 4 3. 5 10. 2 5. 3 3. 1 2. 6 E 200 4 4. 5. 0 4. 0 A 2005 5. 2 5. 0 6. 2 2006 7. 2 5. 2 7. 9 10. 0 R 200 7 7. 2 5. 0 7. 8 15. 8 Country Banglades h India Pakistan Sri Lanka 1999 8. 9 3. 3 5. 7 5. 9 2000 3. 4 7. 2 3. 6 1. 2 2001 1. 6 4. 7 4. 4 11. 0 200 8 9. 9 8. 7 12. 0 22. 6 200 9 6. 7 2. 1 20. 8 3. 4 2010 7. 3 9. 2 11. 7 5. 9 2011 8. 0 7. 8 16. 0 8. 0 Source: Asian Development Outlook-2011, ADB It is showing that there is an increasing trend of inflation since the adaptation of floating exchange rate regime. Data on inflation rates represent period averages. Except for India, which reports the wholesale price index, inflation rates presented are based on consumer price indexes. The higher inflationary situation take place due oil and food price hike in the international market as well as several natural disaster like, Sidor, flood etc. 3. 3 Justification of Floating Exchange Rate: From the above mentioned data analysis, it can be said the previous regime performed quite well in certain criteria. The major reasons behind the adoption of new exchange rate system is mainly the government’s commitment to the liberalization of the country’s economy and to take the appropriate steps to create suitable environment of the economy for entering into capital account convertibility regime. Rather than this, there was IMF’s ‘conditionalities’ to enter into new floating exchange rate regime. 3. 4 The Transition from Fixed to Float: To meet up the economic demand and to fulfill the IMF conditionality, on 29 May, 2003 Bangladesh Bank issued a circular stating- effective from 31st May, 2003, Bangladesh Bank floated its exchange rate and followed a fully market based exchange rate for Taka. Under this arrangement, exchange rate is determined on the basis of demand and supply of the respective currencies. Immediately after the inception of floating exchange rate banks, economists, currency traders and businessmen have welcomed the deregulation of the exchange rate saying that 9 the country’s foreign trade and remittance would get a boast up due to it and it would make the currency market more efficient and effective. Since the introduction there is no unusual raise of exchange rate till mid 2004. Most of the time Taka maintains appreciating position during this period and Bangladesh Bank show a tremendous performance managing the ‘new born’ exchange rate system. During mid 2004, Taka faced significant volatility against USD and it continued up to August 2004. After that period, the volatility of exchange rate of Taka against USD eased but resulting to appreciated USD till mid January 2005. In recent times, Taka has depreciated significantly against USD in the inter-bank market. This has happened as because of price hike in oil price and scrap vessel in the international market created a surge on import settlements. Figure3. 4: Exchange Rate Movement immediately after inception of Floating Exchange Rate Movment 58. 7 58. 65 58. 6 58. 55 58. 5 58. 45 58. 4 58. 35 58. 3 58. 25 58. Exchange Rate TK/$ Jun’-01 Jun’-04 Jun’-08 Jun’-11 Jun’-15 Jun’-18 Jun’-22 Jun’-25 Jun’-29 July’-03 July’-07 July’-10 July’-14 July’-17 July’-21 July’-24 July’-28 Banking days Source: Bangladesh Bank Unpublished Data Behavior of Real Effective Exchang e Rate (REER) and Nominal Exchange Rate: REER is considered as a guiding FX-rate to the policy maker as well as the market participants and it also shows the international competitiveness of countries goods and services. The policy makers are always tried to keep the Nominal Exchange Rate near to the REER. Before 1990 Taka was overvalued (see table no-01,02 and 03. that distorted our international competitiveness and that was the causes of prolonged Balance of Payment crisis. Figure3. 5: Comparison of month end Real Effective Exchange Rate (REER) and Nominal Exchange Rate between 2003-2004. 10 July’-31 62. 00 61. 00 60. 00 Behavior of REER and Nominal FX-Rate Rate TK/$ 59. 00 58. 00 57. 00 56. 00 55. 00 54. 00 REER-2003 53. 00 Nominal TK/$-2003 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec REER-2004 Nominal TK/$-2004 Months Source: Bangladesh Bank Unpublished Data After 1990, Taka remained undervalued. The gap between Nominal Exchange Rate and REER were widened over the per iod. Before inception of floating exchange rate Taka was almost running on a free float for the last 12-15 month as rates were decided according to demand-supply situation and liquidity in market. Bangladesh Bank was also not virtually selling any dollar that time. This means the market has already factored in floating exchange rate. Moreover, before inception Bangladesh Bank took some measures for strengthening regulation, such as, keeping close observation of Authorized Dealer’s (AD’s) daily activities; especially on ‘Open Position’, gave pressure for reconciliation of NOSTRO account balance, encourage every bank to set up dealing room and ressurized to make payment in due time etc. So we can obviously say that way to the floating exchange rate was prepared. 11 Chapter 4 Performance of Floating Exchange Rate System On Macro Economy of Bangladesh Introduction of floating exchange rate was debatable issue and also there were some criticisms about the competence of Bangladesh Bank’s from some corner. But Bangladesh Bank performed a tremendous performance. There was no volatility; no speculation in price and market behaves rationally. If we consider the market statistics, we find that macro economic variables have positive performances over the period of time. Three major variables have been considered for evaluating the impact of exchange rate with them. The variables are Export, Workers Remittances and Foreign reserve. 4. 1 The Export Situation: The export trend from 1998 to 2011 shows an increasing trend. It is shown here that there is upward trend of export after 2003,i. e, after adopting the floating exchange rate regime, the export has a robust growth in the economy. Figure:4. 1: The Export Volume in US$ Source: Bangladesh Bank Quarterly, January-March 2011 During the global recession, the export trend of Bangladesh was not that much affected mostly for the RMG sector. In the FY 09 and FY 10, the export volume increased significantly. 4. 2 Enhancement of Workers Remittance: The Inward remittances from Bangladeshi nationals working abroad remained strong in FY10 even in the face of global economic slowdown and continued to play an important role in strengthening the current account. Receipts on this sector increased by 13. 4 percent to USD 10987. 40 million in FY10 from USD 9689. 26 million in FY09. The underlying reason was that Bangladesh Bank has simplified the approval policy of drawing arrangements between foreign exchange houses and domestic banks. As a result, 40 banks 12 have been allowed for establishing 885 drawing arrangements with 300 exchange houses all over the world for collecting remittances, (of which approximately 650 drawing arrangements with 250 exchange houses are operative now). Figure-4. 2: The Workers Remittance Source: Bangladesh Bank Quarterly, January-March 2011 Considering the growth rate of workers’ remittances, it has been observed that the rate is quite higher after the free floating exchange rate regime that is 20. 52 % (2003-2010) than that of fixed exchange rate regime of Bangladesh which is calculated as 11. 9% (19932002). The increasing amount of workers remittance helps to balance the trade deficit in a prudent manner. 4. 3 Reserve Position: The amount of foreign exchange reserve has been increased significantly over the last couple of years. During the FY 2003 to FY 2005, the trend was quite steady and flat. But, it has an upward trend after FY 2007. The main sources of foreign reserve ar e workers remittance, foreign loans and grants and exports. 13 Figure-4. 3: The Foreign Reserve Position Period Reserves($) 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 469. 6 2705 2930 3483. 8 5077. 2 6148. 8 7470. 9 10749. 7 10911. 6 Source: Bangladesh Bank Quarterly, January-March 2011 After the inception of floating exchange rate regime, the foreign exchange reserve boosted up due to huge amount of workers remittance and increasing trend of export. 4. 4 The Growth Rate of GDP: The GDP growth rate reaches upto 6. 7% during FY 11. From 1994 to 2010, the average growth rate of GDP was 5. 47% reaching at high of 6. 63% in June 2006. The record low rate was 4. 08% during June 2004. For the last couple of years the growth rate was 5% above and Bangladesh is onsidered as a developing country. Figure-4. 4: Bangladesh GDP Growth Rate Source: Bangladesh Bureau of Statistics,2011 14 4. 5 The relationship among the variables: The relationship bet ween the exchange rate and three variables i,e, export, remittance and reserve reflects quite positive in correlation. The correlation has been computed considering the data from 2002-2011. Correlation Exchange Rate Export 0. 928315219 Remittance 0. 859373146 Reserve 0. 825444493 One regression analysis has been done with workers remittance and exchange rate. The purpose of the quantitative analysis is to identify if there is any relationship between exchange rate and workers remittance of Bangladesh. The monthly data of workers remittance from the financial year 2007-2008 to financial year 2011-2012 has been taken for the calculation. The regression model, exchange rate is independent variable and remittance is dependent variable. The regression model is: Y=66. 15+. 010385 remittance The value of R square is . 37 which means that the regression model explains 37% variation in exchange rate. The coefficient is very low which is and P value is quite high that is 3. 74. So, the remittance does not show any significant impact on foreign exchange rate. 15 Chapter 5 Exchange Rate Situation 5. 1 Exchange Rate Movement: In the recent Taka depreciates against US$ drastically: Over the period, July 2010-January 2012, from Tk 70 to Tk 86 — a depressing 23% fall down. Figure-5. 1: Exchange Rate Movement Source: Website OANDA The sharp fall of taka against US dollar continues for last couple of months. US dollar has been weakening against many other strong currencies like Euro, SF, Yen and GBP but getting stronger against Bangladesh Taka. Exchange rate depreciation creates the economy in a challenging situation. Continuous depreciating tendency higher the inflation rate that ultimately increase the trade deficit. The ongoing depreciation of Bangladeshi taka is becoming the challenge for the central bank as well as the Government. The increasing trend of the trade deficit (figure: 7) also shows the possibility of the shortage of supply of the foreign currency i,e, US$ in the market. 5. 2 Reasons for Currency Depreciation: The reasons behind the currency depreciation are influenced by economic fundamental, exchange rate regime and Trading rules. There is a slow trend of capital inflow in the country for the last couple of years. The main reasons for that are low tendency of foreign direct investment and increasing trend of trade deficit. 16 5. 2. 1 High Inflation: Inflation is appearing as a major threat in the economy in the recent past. Inflation had a moderate trend upto 2003 within 6%. It started increasing from 2004 and got sharp rise in 2008-2009 and the increasing trend is still continuing. The main cause of high inflation in Bangladesh is oil and food price hike in abroad. Figure 5. 2: Inflation Source: Monthly Economic Trend-Bangladesh Bank, January 2012 The high level of inflation in the economy leads to lower the value of local currency taka. To cover the deficit budget, Government borrowings from the Central Bank (BB) and overall money supply increased leads to high inflation in the market. 5. 2. 2 Low Foreign Direct Investment: The growth rate of foreign direct investment is showing a declining trend. The data has been used from 1996 to 2011. After 1998 and so on, the trend started to decline sharply. It increased a little bit during 2004-2005 but again has a very declining trend. 17 Figure-5. 3: Growth Rate of Foreign Direct Investment Source: Monthly Economic Trend-Bangladesh Bank, January 2012 In the recent past, the FDI growth rate is severely low. So, proper steps are supposed to be taken by the government authority. 5. 2. 3 Trade Deficit: Though the export volume has an increasing trend since the inception of floating exchange rate regime, there is huge amount of trade deficit with an increasing trend. 18 Figure: 5. 4 Trade Deficit of Bangladesh Source: Monthly Economic Trend-Bangladesh Bank , January 2012 The amount of import has been increased sharply after 2006-2007. The gap between export and import becomes huge during the last financial year 2010-2011. Due to huge import payment, government debt has increased significantly in the country and demand for foreign currency increased. 9 Chapter 6 Recommendations and Conclusion Considering the above mentioned discussions, some recommendations have been formulated in order to bring stability in the foreign exchange market in the short run and long run for the Government and Bangladesh Bank i,e, the central bank of the country. Those are discussing as follows: 6. 1. Control Infl ation: Effective measures are needed to be taken by the central bank to control inflation by reducing money supply in the economy. The formulation of the tighten monetary policy by the central bank is an important factor for controlling inflation. But the deficit budget of the Government creates huge Government Debt and prolong inflationary atmosphere. The related factors for reducing deficit budget 6. 2. Reduce Trade Deficit: One of the important components to reduce the trade deficit is to enhance export volume of goods and services. Bangladesh is a import depended country. The main importable items are petroleum and food. Local industrialization is utmost important specially in the food sector (substitute food items production) and other exportable items to reduce huge liability of the Government. 6. 3 Enhancing Foreign Direct Investment: Sufficient inflow of foreign direct investment could enhance the capital inflow in the country for long term. Bangladesh Government has specific policy for inviting FDI. Ensuring good governance, Infrastructural development, Utility, political stability will help to promote more investment from abroad in the country. 6. 4 Short Term Foreign Borrowings: Borrowings from abroad is another option for supplying liquidity in the market. But the problem of short-term borrowing is that the country may fall into â€Å"Debt-trap† due to be unable to pay the money on time. Once the foreign currency injects in the market, it is difficult to recollect form the market as well. The Central Bank of Philippines in early 1990 can be remembered here. Due to short-term borrowing to meet the local market demand, got huge foreign liability. Continuous losses eroded it’s capital base and made it bankrupt in 1993. It took 25 years to reestablish the new central bank in that country. So, Instead of foreign borrowings, Concessionary loans at a low interest rate from World Bank and ADB and other bilateral donors might be a better option to meet the ongoing gap in the market. . 5 Effective Capital Market: The capital market development is utmost important in order to bring the steady situation in FX market. Ensuring enough flow of Foreign Portfolio Investment (FPI), good governance and security in the capital market is time demand. 6. 6 Derivatives Market: Introduction of various derivative products as options, currency swap, interest cap, interest swap, futures , forwards etc, as well as ensuring huge portfolio investment might bring the positive impact in the exchange rate market. 20 6. Formation of Domestic FX Market: A formal forex market forum should be created, with the participation of independent professional bodies and with representation from the dealers association, Bangladesh Bank and other relevant government officials. This forum would provide the logistic support and platform for the forex market. Ideally, this forum would develop a secured web-based market to which only the members or participating organizations would have access. From this website, all the logistic support required for completing the forex dealings among the members/participating organizations could be provided. 6. Autonomy of the Central Bank: The autonomy of the central bank is desirable issue for the economy. The central bank should operate and perform independently with full automation. Conclusion: This study shows that floating exchange rate regime has constructive effect on economic growth. The transition period from Fixed rate regime to Floating rate regime was quite smooth and stable. There is significant growth in the fundamental economic variables on the long path of the new exchange rate regime. The trend of export, workers’ remittances and foreign reserves have been analyzed and found considerable growth on these variables. Nevertheless, the ongoing exchange rate depreciation along with high inflation is becoming a challenging issue for the regulators and Government as well. The gap between demand and supply of foreign currency in the market is getting bigger in the high inflationary economy which lead continuous loses in the value of the local currency. The key reasons have been found for the currency depreciation are inflation, government debt, trade deficit, low FDI etc. The study recommended some issues for Government’s and Central’s bank’s part. The regulation should be proactive rather than reactive. There are some potentialities in this new regime; to reap this potentiality, Government as well as regulators should take effective steps. 21 REFERENCES Asian Development Bank. 2011. Asian Development Outlook 2010 Update. Asian Development Bank. 2006. Asian Development Outlook 2005, ADB: Manila, Philippines. Asian Development Bank. Manila,Philippines. 2005. Asian Development Outlook 2005, ADB: Asad Karim Khan Priyo, June 2009,Impact of the Exchange Rate Regime Change on the Value of Bangladesh Currency. Bangladesh Bank Annual Reports. 2010. Dhaka Bangladesh. Bangladesh Bank Monthly Economic Trend. January 2012 Bangladesh Bank, Scheduled Bank Statistics. July-September 2011. Financial Sector Review, 2006, Bangladesh Bank. Hossain, Akter. 2002, Exchange Rate, Capital flows and International Trade. Hossain, M. A. , and Alauddin, M. , (Fall 2005), Trade Liberalization in Bangladesh: The Process and Its Impact on Macro Variables Particularly Export Expansion, The Journal of Developing Areas, Volume 39, Issue 1, 127-150. Jeff. Madura, International Financial Management, 10th edition. Islam, Mirza A. 2003): â€Å"Exchange Rate Policy of Bangladesh – Not Floating Does Not Mean Sinking†, Keynote Paper presented at dialogue organized by Centre for Policy Dialogue, Bangladesh – January 2, 2003. Nusrate Aziz . June 2008. The Role of Exchange Rate in Trade Balance: Empirics from Bangladesh. The IMF, Annual Report 2010, Financial operations and transactions, The International Monetary Fund. Younus, S. and Chowdhu ry, M. I. , (December 2006), An Analysis of Bangladesh’s Transition to Flexible Exchange Rate Regime, Working Paper Series. 22 APPENDIX I Trade Deficit of Bangladesh Export Import Year (in million USD) (in million USD) 1994-95 3472. 5250. 6 1995-96 3882. 4 6237. 9 1996-97 4418. 3 6436. 8 1997-98 5161. 2 6768. 0 1998-99 5312. 8 7205. 4 1999-00 5752. 2 7536. 6 2000-01 6467. 3 8401. 5 2001-02 5986. 1 7686. 0 2002-03 6548. 4 8691. 8 2003-04 7603. 0 9812. 9 2004-05 8654. 5 11832. 1 2005-06 10526. 2 13271. 7 2006-07 12177. 9 15441. 0 2007-08 14110. 8 19481. 4 2008-09 15565. 2 20291. 4 2009-10 16204. 7 21388. 2 2010-11 22928. 2 32398. 4 Source: Monthly Economic Trend-Bangladesh Bank , January 2012 Trade Deficit (in million USD) -1778. 1 -2355. 5 -2018. 5 -1606. 8 -1892. 6 -1784. 4 -1934. 2 -1699. 9 -2143. 4 -2209. 9 -3177. 6 -2745. 5 -3263. 1 -5370. -4726. 2 -5183. 5 -9470. 2 23 Yearly Reserve Position In million USD Reserves($) Period 2002-2003 2003-2004 2004-2005 2005-2006 2006-20 07 2007-2008 2008-2009 2009-2010 2010-2011 Source: Monthly Economic TrendBangladesh Bank , January 2012 2469. 6 2705 2930 3483. 8 5077. 2 6148. 8 7470. 9 10749. 7 10911. 6 24 Yearly data of Workers Remittance: Remittances Year/Month 2011-2012* 2010-2011 2009-2010 2008-2009 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004 2002-2003 2001-2002 2000-2001 1999-2000 1998-1999 1997-1998 1996-1997 1995-1996 1994-1995 1993-1994 1992-1993 In million In million US dollar Taka Growth Rate 2117. 7 11650. 32 10987. 4 9689. 26 7914. 78 5998. 47 4802. 41 3848. 29 3371. 97 3061. 97 2501. 13 1882. 1 1949. 32 1705. 74 1525. 43 1475. 42 1217. 06 1197. 63 1088. 72 944. 57 157668. 7 829928. 9 760109. 59 666758. 5 542951. 4 412985. 29 322756. 8 236469. 7 198698 177288. 2 143770. 3 101700. 1 98070. 3 81977. 8 69346 63000. 4 49704 48144. 7 43549 36970. 4 Average Rate Growth 13. 39772078 22. 41982721 31. 94664639 24. 90541207 24. 79334977 14. 12586707 10. 12420109 22. 42346459 32. 8903884 -3. 448382 14. 280 01923 11. 82027363 3. 389543316 21. 22820568 1. 622370849 10. 00349034 15. 2609 20. 51706112 11. 89409131 Source : Foreign Exchange Policy Department, Bangladesh Bank Bangladesh Bank Annual Report 2009-2010 Growth rate is self calculated 25 Yearly data of Inflation Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Point to Point 1. 66 3. 58 5. 03 5. 64 7. 35 7. 54 9. 2 10. 04 2. 25 8. 7 10. 17 11. 59 12 months average 1. 94 2. 79 4. 38 5. 83 6. 48 7. 16 7. 2 9. 94 6. 66 7. 31 8. 8 10. 91 Source: Monthly Economic Trend-Bangladesh Bank , January 2012 26 Yearly data of Export, Remittance, Reserve and Exchanger Rate (In million USD) Workers Year FX Rate Export Remittance in mil US$ (in mil US$) 62. 691 2501. 13 FY02 5985. 89 63. 2216 3061. 97 FY03 6548. 54 64. 0869 3371. 97 FY04 7602. 99 68. 0508 3848. 29 FY05 8654. 52 73. 9865 4802. 41 FY06 10526. 16 74. 1681 5998. 47 FY07 12177. 86 73. 4636 7914. 78 FY08 12685. 4 73. 8228 9689. 26 FY09 14170. 7 74. 5518 10987. 4 FY10 14763. 8 79. 1877 11650. 32 FY11 20313. 8 Source: Monthly Economic Trend- Bangladesh Bank , January 2012 Reserve (in mil US$) 1582. 9 2469. 6 2705 2930 3483. 8 5077. 2 6148. 8 7470. 9 10749. 7 10911. 6 27 Monthly data of Remittance and Exchange Rate Year Month Remittance ( In million USD) Ex rate (average) Year Month Remittance ( In million USD) Ex rate (average) 007-08 2008-09 2009-10 July August September October November December January February March April May June July August September October November December January February March April May June February March April May June July August September October November December January February March April May June 567. 11 470. 95 590. 67 559. 05 617. 39 635. 34 710. 74 689. 26 808. 72 781. 71 730. 26 753. 58 820. 71 721. 92 794. 18 648. 51 761. 38 758. 03 859 784. 47 885. 67 840. 99 895. 3 850. 5 784. 47 885. 67 840. 99 895. 3 850. 5 885. 38 935. 15 887. 57 900. 70 1050. 4 873. 86 952. 39 827. 96 956. 49 922. 16 903. 05 892. 15 73. 6518 73. 4389 73. 5663 73. 3004 73. 2946 73. 473 73. 4672 73. 4063 73. 2738 73. 4847 73. 2841 73. 3473 73. 38 73. 4947 73. 2884 73. 6468 73. 7971 73. 691 73. 7961 73. 8126 73. 8073 74. 1052 73. 9459 73. 9413 73. 8126 73. 8073 74. 1052 73. 9459 73. 9413 73. 9214 73. 6394 73. 7567 73. 7551 73. 5378 73. 8549 73. 8181 73. 9592 74. 2051 74. 0648 74. 4125 74. 6026 2010-11 2011-12 July August September October November December January February March April May June July August September October November December 57. 31 963. 92 837. 71 923. 85 998. 64 969. 10 970. 54 986. 97 1102. 98 1001. 97 998. 42 1038. 91 1015. 58 1101. 79 855. 44 1039. 48 908. 79 1147. 22 74. 5447 74. 4778 74. 5078 75. 0673 75. 3246 75. 5892 75. 8669 76. 0948 76. 8504 77. 8919 78. 42 78. 843 79. 6805 79. 534 79. 7888 80. 9414 81. 9104 84. 1857 28 Source: Monthly Economic Trend-Bangladesh Bank , January 2012 Regression Analysis: Exchange Rate and Remittance SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations 0. 610778 0. 373049 0. 360993 2. 020275 54 ANOVA df Regression Residual Total 1 52 53 SS 126. 2866232 212. 2385435 338. 5251666 Standard Error 1. 622261594 0. 001867047 Lower 95. 0% 62. 90219774 0. 006638903 Upper 95. 0% 69. 41280968 0. 014131912 MS 126. 2866 4. 08151 F 30. 94114904 Significance F 9. 36275E-07 Coefficients Intercept X Variable 1 66. 1575 0. 010385 t Stat 40. 78103 5. 562477 P-value 3. 7402E-41 9. 36275E-07 Lower 95% 62. 90219774 0. 006638903 Upper 95% 69. 41280968 0. 014131912 2 FOREIGN DIRECT INVESTMENT (FDI) INFLOWS AND STOCKS BY COMPONENTS IN BANGLADESH (In million US$) Inflows Period 996-97 Jul-Dec Jan-Jun 1997-98 Jul-Dec Jan-Jun 1998-99 Jul-Dec Jan-Jun 1999-00 Jul-Dec Jan-Jun 2000-01 Jul-Dec Jan-Jun 2001-02 Jul-Dec Jan-Jun 2002-03 Jul-Dec Jan-Jun 2003-04 Jul-Dec Jan-Jun 2004-05 Jul-Dec Jan-Jun 2005-06 Jul-Dec Jan-Jun 2006-07 Jul-Dec Jan-Jun 2007-08 Jul-Dec Jan-Jun 2008-09 Jul-Dec Jan-Jun 2009-10 Jul-Dec Jan-Jun 2010-11 JulyDec. Jan-Jun Source : Stocks Total 366. 85 157. 63 209. 22 603. 30 366. 07 237. 23 394. 10 339. 23 54. 87 383. 22 254. 25 128. 97 563. 92 449. 67 114. 26 393. 76 240. 21 153. 56 379. 18 174. 75 204. 43 284. 16 145. 82 138. 34 803. 78 322. 06 481. 72 744. 61 363. 54 381. 07 792. 4 411. 41 381. 33 768. 69 285. 03 483. 66 960. 59 602. 65 357. 94 913. 02 342. 22 570. 80 Equity Capital 136. 71 40. 79 95. 92 349. 02 236. 14 112. 88 195. 54 167. 63 27. 91 152. 98 109. 56 43. 42 372. 27 306. 76 65. 51 230. 11 168. 27 61. 84 163. 98 71. 97 92. 01 111. 23 64. 13 47. 10 361. 14 108. 79 252. 35 447. 22 173. 24 273. 98 464. 50 229. 67 234. 83 545. 69 166. 78 378. 91 535. 42 430. 34 105. 08 515. 14 113. 47 401. 67 Reinvested Earning 151. 27 79. 92 71. 35 181. 31 92. 10 89. 21 120. 71 100. 67 20. 04 80. 71 56. 19 24. 52 81. 00 53. 25 27. 75 84. 66 37. 26 47. 40 164. 97 69. 42 95. 55 161. 38 74. 58 86. 80 297. 1 152. 99 144. 12 198. 64 103. 36 95. 28 281. 00 169. 46 111. 54 197. 71 101. 70 96. 01 336. 61 149. 72 186. 89 331. 10 178. 05 153. 05 Intracompany Loans 78. 87 36. 92 41 . 95 72. 97 37. 83 35. 14 77. 85 70. 93 6. 92 149. 53 88. 50 61. 03 110. 66 89. 66 21. 00 79. 00 34. 68 44. 32 50. 23 33. 36 16. 87 11. 55 7. 11 4. 44 145. 53 60. 28 85. 25 98. 75 86. 94 11. 81 47. 24 12. 28 34. 96 25. 29 16. 55 8. 74 88. 56 22. 59 65. 97 66. 78 50. 70 16. 08 Equity Capital †¦ †¦ †¦ †¦ †¦ †¦ †¦ †¦ †¦ 1010. 45 968. 83 1010. 45 1182. 07 1215. 54 1182. 07 1408. 98 1325. 97 1408. 98 1579. 15 1472. 70 1579. 15 1854. 10 1818. 86 1854. 10 2123. 50 1940. 7 2123. 50 2468. 63 2268. 39 2468. 63 2857. 96 2736. 50 2857. 96 3719. 99 3068. 07 3719. 99 3909. 60 3823. 32 3909. 60 5014. 96 4426. 69 5014. 96 Reinvested Earning †¦ †¦ †¦ †¦ †¦ †¦ †¦ †¦ †¦ 505. 89 492. 80 505. 89 470. 44 470. 37 470. 44 505. 13 494. 15 505. 13 637. 75 550. 10 637. 75 708. 43 649. 08 708. 43 880. 01 822. 04 880. 01 974. 18 904. 81 974. 18 1146. 22 1133. 87 1146. 22 873. 76 1109. 59 873. 76 903. 65 742. 04 903. 65 544 . 21 474. 06 544. 21 Intracompany Loans †¦ †¦ †¦ †¦ †¦ †¦ †¦ †¦ †¦ 459. 04 428. 96 459. 04 454. 29 475. 85 454. 29 448. 82 382. 08 448. 82 410. 64 427. 89 410. 64 321. 16 408. 03 321. 16 362. 10 328. 7 362. 10 322. 72 363. 95 322. 72 364. 23 316. 86 364. 23 210. 68 221. 12 210. 68 325. 94 250. 66 325. 94 410. 29 378. 17 410. 29 Total †¦ †¦ †¦ †¦ †¦ †¦ †¦ †¦ †¦ 1975. 38 1890. 59 1975. 38 2106. 80 2161. 76 2106. 80 2362. 93 2202. 20 2362. 93 2627. 54 2450. 69 2627. 54 2883. 69 2875. 97 2883. 69 3365. 61 3090. 68 3365. 61 3765. 53 3537. 15 3765. 53 4368. 41 4187. 23 4368. 41 4804. 43 4398. 78 4804. 43 5139. 19 4816. 02 5139. 19 5969. 46 5278. 92 5969. 46 118. 31 211. 57 12. 64 131. 64 233. 62 71. 26 Statistics Department, Bangladesh Bank. 342. 52 436. 52 5196. 21 5143. 70 533. 65 612. 69 342. 21 462. 67 6072. 07 6219. 06 3 How to cite Report on Inflation, Papers

Language and Its Characteristics Essay Example

Language and Its Characteristics Essay Language is a means of forming and storing ideas as reflections of reality and exchanging them in the process of human intercourse. Language is social by nature; it is inseparably connected with the people who are its creators and users; it grows and develops together with the development of society. Language incorporates the three constituent parts (sides), each being inherent in it by virtue of its social nature. These parts are the phonological system, the lexical system, the grammatical system. Only the unity of these three elements forms a language; without any one of them there is no human language in the above sense. The phonological system is the subfoundation of language; it determines the material (phonetical) appearance of its significant units. The lexical system is the whole set of naming means of language, that is, words and stable word-groups. The grammatical system is the whole set of regularities determining the combination of naming means in the formation of utterances as the embodiment of thinking process. Each of three constituent parts of language is studied by particular linguistic discipline. These disciplines presenting a series of approaches to their particular objects of analysis , give the corresponding descriptions of language consisting in ordered expositions of the constituent parts in question. Thus, the phonological description of language is effected by the science of phonology ; the lexical description of language is effected by the science of lexicology; the grammatical description of language is effected by the science of grammar. We will write a custom essay sample on Language and Its Characteristics specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Language and Its Characteristics specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Language and Its Characteristics specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Now we are going to have a good look at each of these three disciplines. [Blokh,6] The first one is Phonology. The study of speech sounds is partitioned between two distinct but related disciplines, phonetic and phonology. Both terms come from the Greek word meaning sound, and there is a fair degree of overlap in what concerns the two subjects . Thus, the boundaries between phonetics and phonology are very difficult to draw, and there is a good deal of controversy amongst linguists as to exactly where they should lie. Despite the differences, it is clear that each of these subdisciplines relies on the other to a large extent , in the sense that phonological analyses have to be grounded in phonetic facts, and phonetic research has to be geared towards those capacities of the human vocal tract which subserve language specifically. Phonetics is essentially the study of the physical aspects of speech. This means the acoustic bases of speech (linked most closely with speech production). Thus, phonetic research might investigate the collection of frequencies of sound observed in the production of particular types of vowel, or it might examine the precise movements of the tongue in producing the sound s. Phonology is connected with the linguistic patterning of sounds in human languages Grammar . In earlier periods of the development of linguistic knowledge, grammatical scholars believed that the only purpose of grammar was to give strict rules of writing and speaking correctly. The rigid regulations for the correct ways of expression, for want of the profound understanding of the social nature of language, were often based on purely subjective and arbitrary judgements of individual grammar compilers. The result of this prescriptive approach was, that alongside of quite essential and useful information, non-existent rules were formulated that stood in sheer contradiction with the existing language usage, i. e. lingual reality. Traces of this arbitrary prescriptive approach to the grammatical teaching may easily be found even in to-dates school practice. The said traditional view of the purpose of grammar has lately been restated by some modern trends in linguistics. In particular, scholars belonging to these trends pay much attention to artificially constructing and analysing incorrect utterances with the aim of a better formulation of the rules for the construction of correct ones. The nature of grammar as a constituent part of language is better understood in the light of explicitly discriminating the two planes of language, namely, the plane of content and the plane of expression. . Modern linguistics lays a special stress on the systemic character of language and all its constituent parts. It accentuates the idea that language is a system of signs (meaningful units) which are closely interconnected and interdependent. Units of immediate interdependencies (such as classes and subclasses of words, various subtypes of syntactic constructions, etc. form different microsystems (subsystems) within the framework of the global macrosystem (supersystem) of the whole of language. Each system is a structured set of elements related to one another by a common function. The common function of all the lingual signs is to give expression to human thoughts. The systemic nature of grammar is probably more evident than that of any other sphere of language, since grammar is re sponsible for the very organisation of the informative content of utterances [БÐ »Ã ¾Ã'…, 4, 11 Ð ¸ Ã' Ã ». . Due to this fact, even the earliest grammatical treatises, within the cognitive limits of their times, disclosed some systemic features of the described material. But the scientifically sustained and consistent principles of systemic approach to language and its grammar were essentially developed in the linguistics of the twentieth century, namely, after the publication of the works by the Russian scholar Beaudoin de Courtenay and the Swiss scholar Ferdinand de Saussure. These two great men demonstrated the difference between lingual synchrony (coexistence of lingual elements) and diachrony (different time-periods in the development of lingual elements, as well as language as a whole) and defined language as a synchronic system of meaningful elements at any stage of its historical can be strictly defined, which is of crucial importance for the identification of the object of linguistic science. Language in the narrow sense of the word is a system of means of expression, while speech in the same narrow sense should be understood as the manifestation of the system of language in the process of intercourse. The system of language includes, on the one hand, the body of material units — sounds, morphemes, words, word-groups; on the other hand, the regularities or rules of the use of these units. Speech comprises both the act of producing utterances, and the utterances themselves, i. e. the text. Language and speech are inseparable, they form together an organic unity. As for grammar (the grammatical system), being an integral part of the lingual macrosystem it dynamically connects language with speech, because it categorially determines the lingual process of utterance production. Thus, we have the broad philosophical concept of language which is analysed by linguistics into two different aspects — the system of signs (language proper) and the use of signs (speech proper). The generalising term language is also preserved in linguistics, showing the unity of these two aspects [БÐ »Ã ¾Ã'…, 16]. The sign (meaningful unit) in the system of language has only a potential meaning. In speech, the potential meaning of the lingual sign is actualised, i. e. made situationally significant as part of the grammatically organised text. Lingual units stand to one another in two fundamental types of relations: syntagmatic and paradigmatic. Syntagmatic relations are immediate linear relations between units in a segmental sequence (string). E. g. : The spaceship was launched without the help of a booster rocket. In this sentence syntagmatically connected are the words and word-groups the spaceship, was launched, the spaceship was launched, was launched without the help, the help of a rocket, a booster rocket. . On the basis of discriminating synchrony and diachrony, the difference between language proper and speech proper