Short notes

FX Market

The currency market, commonly referred to as the foreign exchange market, is a marketplace where various individuals from across the world buy and sell various currencies. In the conduct of international trade, this market is extremely important. The currency market benefits businesses and people by allowing them to buy and sell products and services in foreign currencies and by facilitating a constant flow of capital. The key players in the currency markets, including big multinational banks, corporations, governments, and retail traders, work around-the-clock. Members come to the currency market with various goals in mind, and together they increase the market's efficiency and liquidity. These markets, in large part, are what power the vibrant world economies. Cross-border trade, investment, and financial activities are significantly facilitated by the foreign exchange markets. These marketplaces enable companies conducting foreign exchange transactions to change their existing currency or deposit into the desired currency or deposit. Foreign exchange dealers handle the majority of transactions.

Liabilities of Offshore Banking Operation

Banks have to reckon the following components of demand and time liabilities for the calculation of required cash reserve and statutory liquidity reserve for OBO:

i. Customer Deposit;

ii. Deposit from Banks (Outside Bangladesh);

iii. Borrowing from Banks (Outside Bangladesh);

iv. Deposit from Financial Institutions (Outside Bangladesh);

v. Borrowing from Financial Institutions (Outside Bangladesh);

vi. Other payable Liabilities (excluding domestic intra-bank and interbank OBO to OBO transactions)

NFCD/RFCD Rates

NFCD (Non Resident Foreign Currency Deposit) Account is an interest bearing time deposit account for Non Resident Bangladeshis which can be opened with foreign currency for a period of 1/3/6/12 months. The accounts are in the nature of term deposits maturing after one month, three months, six months and one year with option for auto renew. The accounts can be maintained in US dollar, pound sterling, Euro. Accounts may be opened against remittances in other convertible currencies after conversion of those. On the other hand, RFCD (Resident Foreign Currency Deposit) is a Deposit account for resident Bangladeshis which can be opened with foreign currency brought at the time of their return from abroad. Only Resident Bangladeshis can open this account. Interest rates for NFCD/ RFCD accounts of different tenors are also provided in the exchange rate sheets

Direct Quotation

This approach expresses the quote in terms of local money. This means that the exchange rate describes the relationship between one unit of the local currency and the foreign currency. What would result from an exchange of one unit of the local currency for how many units of the foreign currency? The price quotation method is another name for this approach. Consequently, if the value of the local currency rises, less of it would need to be swapped. In contrast, a drop in value would make it necessary to convert a significant amount of local currency. As a result, it can be claimed that the quotation rate and the value of the local currency are inversely related. In the case of a straight quotation, the value of the local currency is taken to be 1. The price given explains how many units of foreign currency can be converted into one unit of local currency.

Indirect Quotation

The direct quotation approach is the antithesis of this approach. This approach expresses the quote in terms of foreign money. In light of this, the rate is based on one unit of foreign currency. The amount of domestic currency needed to purchase one unit of a foreign currency is then expressed. This quotation is occasionally also given in terms of 100 foreign currency units. The quantity quotation method is another name for this approach. The quoted rate for this approach has a direct relationship with the local rate because it is expressed in terms of foreign currency. The value of the home currency rises if the quote does, and vice versa. Example: An example of indirect quotation would be: EUR/USD: 0.875/79. In this case, the first currency i.e. EUR is the domestic currency. Therefore, the indirect quote refers to approximately 0.875 EUR being exchanged for 1 unit of USD. Once again the two rates provided are the bid ask rate i.e. the two different rates at which market makers are willing to buy and sell the currency. The usage of indirect currency quotation is extremely rare. It is only in the Commonwealth countries like United Kingdom and Australia that the indirect quotation method is used as a result of convention

LIBOR Rate

The largest banks in the world use LIBOR as their benchmark interest rate for lending money to one another. The major multinational banks are questioned by the Intercontinental Exchange, which manages LIBOR, about the rates they would charge other banks for short-term loans. The rate is determined using the Waterfall Methodology, a standardized, transaction-based, tiered, data-driven approach. LIBOR is no longer considered as a trustworthy benchmark rate as a result of manipulation, debate, and methodological criticism. The Secured Overnight Financing Rate (SOFR), which will replace LIBOR on June 30, 2023, will be phased out starting in 2021. The exchange rate sheet includes the SOFR and LIBOR rates from the previous day.

SOFR

Despite the barrage of emails, articles, and media reports warning of this shift, many treasury teams are still far from being ready for the end of LIBOR. By now, every corporate treasurer ought to be aware that the demise of the London Interbank Offered Rate (LIBOR) affects more than just banks and investment companies. The changeover will have an effect on any business that has issued floating-rate debt based on LIBOR, used swaps or futures contracts to manage risk, or obtained loans with LIBOR-based interest rates. For the remainder of this year, treasurers, CFOs, CEOs, and boards should place a high priority on navigating the path to a new interest rate benchmark. When evaluating the financial success of a business, treasurers frequently need to look both forward and backward. It makes sense to adopt the same strategy when learning the specifics of how the LIBOR transition will take place.