Some terms to know

• Authorised Dealer means a person for the time being authorized to deal in foreign exchange.
• Authorized Money Changer” means a person for the time being authorized to deal in foreign currency notes
and coins.
• Currency" includes all coins, currency notes, bank notes, postal notes, money orders, cheques, drafts,
traveler’s cheques, letters of credit, bills of exchange and promissory notes.
•Exchange Company” means a company authorized to deal in foreign currency notes, coins, postal notes,
money orders, bank drafts, traveler's cheques and transfers.
•Foreign Currency" means any currency other than Pakistan currency.
•Foreign Exchange" means foreign currency and includes any instrument drawn, accepted, made or issued.
•Exchange Rate Regime
Since May 1999, Pakistan has been following a market-based flexible exchange rate
system. Inter-bank rate applies to all foreign exchange receipts and payments both in the
public and private sectors. Exchange rate is determined by the demand and supply
conditions in the domestic interbank foreign exchange market.

–All foreign exchange requirements for all approved purposes, including imports, services
and debt repayment are met by the authorized dealers that form the inter-bank market.
The authorized dealers are not required to approach the SBP for release of foreign
exchange for any purpose, nor are they required to surrender it to the SBP. Each
authorized dealer is free to fix their own buying and selling rates. The SBP does not
provide forward cover to the authorized dealers. However, authorized dealers may provide
forward cover for exports, imports and other permitted transactions, in accordance with
the conditions prevailing in the market.
FX Reserves
• Foreign Exchange Act 1947 authorizes State Bank of Pakistan to manage country’s
foreign exchange reserves. As an agent to the Government, the Bank has been
authorized to purchase and sale gold, silver or approved foreign exchange and
transactions of Special Drawing Rights with the International Monetary Fund.

As the custodian of country’s external reserves, the State Bank is responsible for the
management of the foreign exchange reserves and repayment of external debts. The
reserves management task is being performed by an Investment Committee which,
after taking into consideration the overall level of reserves, maturities and payment
obligations, takes decision to make investment of surplus funds in such a manner that
ensures practical management of Foreign Exchange Reserves with core objective of
Safety, Liquidity and Optimum Return.
Factors influencing Foreign Exchange
• Changes in price level:
• Price level of a country plays a significant role. For example take 2
countries Pakistan and England. If the price level in Pakistan ries due
to inflation , this means that its goods have now become more
expensive.
• Exports and Imports:
• Volume of exports and imports of aa country also produce significant
changes on exchange rates.
• If ex[ports of a country are higher than its imports, then this means
that demand for the currency of this country is also high and vice
versa.
• Stock Exchange Influence:
• Working and status of stock exchange markets also influence
exchange rates. If a country, there is an active cpital capital market,
healthy business of stocks, shares, debentures is going on then funds
will prove valuable.