How Financial Markets and Institutions operate in Bangladesh

Financial markets in Bangladesh is mainly of following types

1. Money Market:
Money market defines the short term financial needs. The assets that are bought and sold
are short term—with maturities ranging from a day to a year—and normally are easily
convertible into cash. Money markets include markets for such instruments as bank
accounts, including term certificates of deposit; interbank loans (loans between banks);
money market mutual funds; commercial paper; Treasury bills; and securities lending and
repurchase agreements (repos). The most familiar money market instruments are bank
deposits, which are not considered securities, even though certificates of deposit are
sometimes traded like securities. Depositors, who are lending money to the bank, look to
the institution’s creditworthiness, as well as to any government programs that insure bank
deposits.
2. Taka Treasury Bond market
The Taka Treasury bond market consists of primary issues of treasury bonds of different
maturities (2, 5, 10, 15 and 20 years), and secondary trade therein through primary
dealers. 20 banks performing as Primary Dealers participate directly in the primary
auctions. Other bank and non-bank investors can participate in primary auctions and in
secondary trading through their nominated Primary Dealers. Non-resident individual and
institutional investors can also participate in primary and secondary market, but only in
treasury bonds.
3. Capital market:
Capital market is a place where buyers and sellers indulge in trade (buying/selling) of
financial securities like bonds, stocks, etc. The trading is undertaken by participants such
as individuals and institutions. Capital market trades mostly in long-term securities. The
magnitude of a nation’s capital markets is directly interconnected to the size of its
economy which means that ripples in one corner can cause major waves somewhere else.
Types of Capital Market

Capital market consists of two types i.e. Primary and Secondary.

I. Primary Market

Primary market is the market for new shares or securities. A primary market is
one in which a company issues new securities in exchange for cash from an
investor (buyer).It deals with trade of new issues of stocks and other securities
sold to the investors.

II. Secondary Market

 Secondary market deals with the exchange of prevailing or previously-issued
securities among investors. Once new securities have been sold in the primary
market, an efficient manner must exist for their resale. Secondary markets give
investors the means to resell/ trade existing securities. Another important division
in the capital market is made on the basis of the nature of security sold or bought,
i.e. stock market and bond market.

4. Foreign Exchange Market:

The foreign exchange market or forex market is the market where currencies are
traded. The forex market is the world’s largest financial market where trillions are
traded daily. It is the most liquid among all the markets in the financial world.
Moreover, there is no central marketplace for the exchange of currency in the
forex market. It is an OTC market.  The exchange rate is being determined in the
market on the basis of market demand and supply forces of the respective
currencies. In the forex market banks are free to buy and sale foreign currency in
the spot and also in the forward markets. However, to avoid any unusual volatility
in the exchange rate, Bangladesh Bank, the regulator of foreign exchange market
remains vigilant over the developments in the foreign exchange market and
intervenes by buying and selling foreign currencies whenever it deems necessary
to maintain stability in the foreign exchange market.

Banks
After the independence, banking industry in Bangladesh started its journey with 6
nationalized commercialized banks, 3 State owned specialized banks and 9 Foreign
Banks. In the 1980's banking industry achieved significant expansion with the entrance of
private banks. Now, banks in Bangladesh are primarily of two types:

 Scheduled Bank: The banks that remain in the list of banks maintained under the
Bangladesh Bank Order, 1972.
 Non-Scheduled Bank: The banks which are established for special and definite
objective and operate under any act act but are not Scheduled Banks. These banks
cannot perform all functions of scheduled banks.

There are now 5 non-scheduled banks in Bangladesh which are:

 Ansar VDP Unnayan Bank,

 Karmashangosthan Bank,
 Grameen Bank,
 Jubilee Bank,
 Palli Sanchay Bank
FIs
Non-Bank Financial Institutions (FIs) are those types of financial institutions which are
regulated under Financial Institution Act, 1993 and controlled by Bangladesh Bank.
Now, 34 FIs are operating in Bangladesh while the maiden one was established in 1981.
Out of the total, 2 is fully government owned, 1 is the subsidiary of a SOCB, 15 were
initiated by private domestic initiative and 15 were initiated by joint venture initiative.
Major sources of funds of FIs are Term Deposit , Credit Facility from Banks and other
FIs, Call Money as well as Bond and Securitization.
The major difference between banks and FIs are as follows:

 FIs cannot issue cheques, pay-orders or demand drafts.

 FIs cannot receive demand deposits,
 FIs cannot be involved in foreign exchange financing,
 FIs can conduct their business operations with diversified financing modes like
syndicated financing, bridge financing, lease financing, securitization instruments,
private placement of equity etc.