Business School

International Financial Management

FIN4813

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Student’s Name: <Name>

Case Study
Solution by
Jehanzaib Ali (+92-322-7331734)
financetree.edu@gmail.com
Table of Contents
(I) The Stock Exchange of Thailand (SET)......................................................................................3
Introduction...........................................................................................................................................3
Bangkok Stock Exchange.................................................................................................................3
The Stock Exchange of Thailand.....................................................................................................3
Details of SET........................................................................................................................................4
Listed Companies.............................................................................................................................4
Market Indices...................................................................................................................................4
Market Capitalization......................................................................................................................4
Stock Prices Behavior.......................................................................................................................5
Factors Affecting the Stock Market.................................................................................................6
Regulation of stock market..............................................................................................................6
Corporate governance system.........................................................................................................7
Investors’ protection.........................................................................................................................7
(II) Thailand Currency........................................................................................................................7
Monetary unit of Thailand..................................................................................................................7
Exchange Rate of Thai Baht against Major Currency units.............................................................8
Thai Baht exchange rate behavior against Major Currency Units..................................................8
Thai Baht vs. USD.............................................................................................................................8
Thai Baht vs. EUR.............................................................................................................................9
Analysis of Thai Currency Behavior..................................................................................................9
Exchange Rate Policy.......................................................................................................................9
Interest rates....................................................................................................................................10
Inflation rate....................................................................................................................................10
Other Factors in prospect of THD/USD......................................................................................10
The impact of foreign currency on multinational corporations (MNCs) of Thailand............11
References................................................................................................................................................12
 (I) The Stock Exchange of Thailand (SET)

Introduction

The proposal for the establishment of securities markets for the mobilization of capital
for the economic development of Thailand was put forward in the Second National
Economic and Social Development Plan (1967-1971) where it was stressed on the fact
that the most important role of the market would be to mobilize funds for Thailand’s
industrial and economic development [ CITATION Tow161 \l 1033 ]

Bangkok Stock Exchange

As a result of this proposal, a private group laid the foundation of an organized stock
exchange called “Bangkok Stock Exchange Co., Ltd.” (BSE) in 1963 [ CITATION Tow161 \l
1033 ]. The annual turnover of BSE in different years was:

Years Turnover
1968 160 million baht
1969 114 million baht
1970 46 million baht
1971 28 million baht

Due to poor performance of stocks because of lack of official government support and a
limited investor understanding of the equity market, the turnover of the stock exchange
consistently showed a declining trend over different periods.

The Stock Exchange of Thailand

With the failure of BSE, it was a need to establish a securities market under the
supervision of government official. Thus, the Second National Economic and Social
Development Plan (1967-1971) proposed a plan for the foundation of an officially
supported market for securities trading. For that purpose, government officials hired
Prof. Sidney M. Robbins from Columbia University upon the recommendations of
World Bank. Prof. Sidney M. Robbins, former Chief Economist at United States
Securities and Exchange Commission, prepared a report “A Capital Market in
Thailand” in 1970 which became the master plan for the establishment of the Thai
capital market. As a result of this report and long legislation process “The Securities
Exchange of Thailand” founded in April, 1975. On January 1, 1991 its name was
changed to “The Stock Exchange of Thailand” (SET) [ CITATION Tow161 \l 1033 ].

Details of SET

Listed Companies

There are 705 listed companies as on February 16th, 2016.

Market Indices

Market indices of SET are:

 SET 50
 SET 100
 SETHD
 mai

Market Capitalization

Market capitalization of last five months has been shown in the following table
[ CITATION Tow162 \l 1033 ].
Stock Prices Behavior

The stock price behavior of SET has been analyzed from P/E ratios of the market index
taken monthly as shown below [ CITATION Tow162 \l 1033 ]:
 P/E Ratio
25

20

15

10

0
Jan-16 Dec-15 Nov-15 Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 Feb-15

P/E Ratio

Factors Affecting the Stock Market

Macroeconomic factor, such as interest rate, bond price, foreign exchange rate, price to
earnings ratio, market capitalization and consumer price index have a strong correlation
with stock prices of SET during the period from 1992-2001. Although these factors
represent individual market but have significant impact on the whole Thailand financial
system [ CITATION Sar04 \l 1033 ].

Variable factors such as RSP500, the RBSI and ROIL can also influence the volatility of
SET. [ CITATION Par13 \l 1033 ].

Regulation of stock market

In Thailand, the Securities and Exchange Commission (SEC) supervises the stock
exchange of Thailand (SET). SEC ensures that investor receives correct and timely
information about the securities and the capital gains.

The regulations are issued by The Ministry of Finance to oversee the functions of the
SET. The regulations are either issued by The Ministry or may be drafted by SET Board
of Governors [ CITATION The16 \l 1033 ].
Corporate governance system

The SET’s Board of Governor SET members consist of eleven members, out of whom
five are appointed by the SEC and five are elected by SET members. The SET president
is also appointed by the Board. The role of the board is to formulate the policies and
supervision of SET operations; some of the rules and regulations are also approved by
SEC [ CITATION Tow161 \l 1033 ].

Investors’ protection

To build the confidence of the investors, SET along with the voluntary members firms
has started the Securities Investor Protection Fund (SIPF). SIPF members can receive
their assets back or compensation for the price of assets from this fund in the
circumstances defined in the regulations. Although SET and SEC play an important role
in regulatory enforcement however, investors are advised to invest only in the securities
companies that are licensed by the Ministry of Finance upon the recommendation of
SEC. SEC or the Economic Crime Division of the Royal Thai Police receives the reports
by investors in case of any suspected misconduct.

In addition to this, SET and other trading centers are assigned the duty of frontline
trading surveillance with a tracking system and this tracking is used to prevent the
irregularities and unfair trading that can exploit investors.

The SET trading system, the ARMS, is fully computerized system that has the capacity
to handle over 600,000 orders daily[ CITATION Tow161 \l 1033 ].

(II) Thailand Currency

Monetary unit of Thailand

The currency unit of Thailand is baht (sign: ฿; code: THB). It is further divided into 100
satang. Bank of Thailand is responsible for the issuance of currency.
Exchange Rate of Thai Baht against Major Currency units

Country Currency Average buying rates Average

Sight Bill Transfer selling rates
United States USD 35.3742 35.4669 35.7869
Euro Zone EUR 39.3325 39.441 40.1462
Table 1: Average counter rates of Thai Baht against Other Currencies, February 16, 2016

Source: Bank of Thailand

Thai Baht exchange rate behavior against Major Currency Units

To see the exchange rate behavior of Thai baht against major currency units i.e. United
States and Euro Zone, the historical data against each of the currency for the past three
years taken monthly (average) has been presented here [ CITATION Ave16 \l 1033 ]:

Thai Baht vs. USD

Thai Baht vs. USD is relatively stable. If we see the highest and lowest value of the
exchange rates, its shows a very small spread i.e. 7.0401 baht.

Highest = 36.2133 baht

Lowest=29.17323 baht
Average=32.6412 baht

Thai Bhat to USD Rates 3 years Data

40
35
30
25
20
15
10
5
0
l l
13 ary ri ne ust er er ary rch ay uly er er 15 ary ri ne ust er er ary
20 bru Ap Ju ug ctob emb nu Ma M J emb emb 20 bru Ap Ju ug ctob emb nu
A O c Ja pt ov A O c Ja
Fe De Fe De
Se N

Thai Baht to USD Rates Average bid Thai Baht to USD Rates Average ask
Thai Baht vs. EUR

Thai Baht vs. EUR is also relatively stable. If we see the highest and lowest value of the
exchange rates, its shows a very small spread i.e. 9.8233 baht

Highest = 44.9633 baht

Lowest=35.14002 baht
Average=40.7157 baht

Thai Baht to EURO 3 Years Data

50
45
40
35
30
25
20
15
10
5
0
l r 5 ry il e st
13 ary ri ne ust er er ary rch ay ly r r r ry
Ju mbe mbe 201 rua Apr Jun gu tobe mbe ua
20 bru Ap Ju ug ctob emb nu Ma M
A O c Ja e e
pt ov
b A Oc ce Jan
u
Fe De e N Fe De
S

Thai Baht to EURO Rates Average bid Thai Baht to EURO Rates Average ask

Analysis of Thai Currency Behavior

Since 2000, Thailand baht showed appreciation and more volatility. This may be
accounted by the Thai economy resilience in its long term growth. The other reason is
the devaluation of American dollar caused by subprime crisis and policies initiated by
Federal Reserve to tackle turbulence [ CITATION Wat13 \l 1033 ].

Exchange Rate Policy

The Bank of Thailand is the central bank of Thailand. This bank coupled with finance
ministry has power to shape their monetary policy including exchange rates. Over the
last some years The Bank of Thailand and finance ministry’s approach to determine the
value of the baht in terms of other currency has been very conservative. They decided to
depreciate the value of baht in 1984 to boost up export upon the recommendation of
central bank. When export slowed down to zero in 1996, the central banker refused to
depreciate and in the end currency collapsed and Thai economy collapsed as well and
then it till years to revive the economy. Central bank of Thailand does not prefer to
depreciate the value of baht against the major currencies instead they believe a slow
economy growth of 2% to 3% instead of 5% by depreciation of baht as spending is
weak, investment is down, trade and tourism has shrink down [ CITATION Ban14 \l 1033 ].

Interest rates

Interest rates and exchange rates are highly correlated.

Fluctuations in the interest rates can cause fluctuations in both exchange rates and
inflation as well. Interest rates in the Thailand have been averaged to 2.38 percent for
the period from 2000 to 2016 with a record low of 1.25 percent in June of 2003 as
reported by BOT [ CITATION Tha16 \l 1033 ]. However, It was found that increase in the
interest rate had a small impact on the exchange rates during the crisis period in
Thailand, Korea and Malaysia [ CITATION Rob02 \l 1033 ].

Inflation rate

Inflation rates and exchange rates are also highly correlated.

Inflation rate in Thailand averaged 4.38% from 1977 to 2016, whereas the highest value
for inflation rate was recorded at 24.56 percent in June, 1980 and it was recorded at
lowest rate of -4.38% in July 2009 [ CITATION Tha161 \l 1033 ].

A study found that if the baht appreciates or depreciates by 1% the inflation rate will be
adjusted by 0.1406 in the opposite direction in the short run [ CITATION Wat13 \l 1033 ].

Other Factors in prospect of THD/USD

Factors affecting exchange rate behavior are term of trade, international reserves,
interest rates differential, the manufacturing production index, the monetary base and
government base [ CITATION Tao15 \l 1033 ]
 i. The terms of trade and international reserves have significant impact on
THB/USD exchange rate where term of trade have negative relationship
whereas international reserves have positive relationship with the THB/USD
exchange rate.
ii. As Thailand is an export oriented country thus the prices of export and
import can have a strong impact on THB/USD exchange rate.
iii. Other factors affecting THB/USD but non-significantly are interest rates
differentials (negative correlation), the manufacturing production index
(Positive correlation), monetary base (positive correlation) and government
debt (negative correlation).

The impact of foreign currency on multinational corporations (MNCs) of Thailand

A depreciation of the currency in the host country causes the decrease in the amount of
foreign currency that is needed to purchase the assets. Some empirical studies show
that there is insignificant impact of exchange rate movements in the FDI. [ CITATION Bru06
\l 1033 ]. Any MNCs consolidated earnings are reduced by the translation effect when
foreign currencies depreciate. Low level of foreign currencies may be translated a low
level of consolidated earnings.
References
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http://www.oanda.com/currency/average

Banyan Asia. (2014, October 2014). Retrieved February 16, 2016, from The Economist:
http://www.economist.com/blogs/banyan/2014/10/thailands-economy

Blonigen, B. A. (Winter 2006). Foreign Direct Investment Behavior of Multinational Corporations. NBER
Reporter.

Exchange Rates UK. (2016, February 16). Retrieved February 16, 2016, from Exchange Rates UK:
http://www.exchangerates.org.uk/USD-THB-exchange-rate-history.html

Exchange Rates UK. (2016, February 16). Retrieved February 16, 2016, from Exchange Rates UK:
http://www.exchangerates.org.uk/EUR-THB-exchange-rate-history.html

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http://www.exchangerates.org.uk/EUR-THB-exchange-rate-history.html

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Robert Dekle, C. H. (2002, February). High Interest Rates and Exchange Rate Stabilization in Korea,
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Sardar M.N. Islam, S. W. (2004). A Time Series Analysis and Modeling of The Thai Stock Market.
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Taoufik Bouraoui, A. P. (2015). On the determinants of the THB/USD exchange rate. Procedia Economics
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http://www.tradingeconomics.com/thailand/inflation-cpi

Thailand Interest Rate. (2016, February 20). Retrieved from Trading Economics:
http://www.tradingeconomics.com/thailand/interest-rate

The Securities and Exchange Commision. (2016). Retrieved February 16, 2016, from About the SEC:
http://www.sec.or.th/EN/AboutSEC/Pages/Introduction.aspx
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Towards the 5th Decade. (2016). Retrieved February 16, 2016, from The Stock Exchange of Thailand:
http://www.set.or.th/en/about/overview/history_p1.html

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