Financial Analysis Between Three Countries

8/11/2019 Financial Analysis Between Three Countries

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Introduction

This term paper is prepared with an intention to meet the partial requirement of the course

International Financial Management (FIN 425). We have chosen to work on the term paper

named "Financial Analysis of Three Countries for this purpose.

Objective of the Study:

The objective of this term paper is to get familiarize with the real market situation and

compare it with the theoretical concepts. The main objective of this term paper is to have an

overall idea of the economy of USA, France and Bangladesh. In addition, the term paper

seeks to achieve the following objectives:

1. To find out the relationship between the percentage change in trade balance and the

exchange rate between this 3 countries.

2. To have an overall idea about the interest rate, inflation and GDP growth rate of this 3

countries.

3. To find out the different patterns of the exchange rates between this 3 countries and the

logic behind their fluctuation.

4.

To find out the co-relationship and standard deviation of the currencies of this 3

countries.

Methodology of the Study:

Mostly we have collected data from secondary sources to conduct the analysis of this term

paper.


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Scope of the Study:

1.

We were able to know about the overall economy of USA, France and Bangladesh and

their policies to conduct international business.

2. We were able to know about the different reasons behind the fluctuations in trade

balance, exchange rate, interest rate, inflation rate and GDP growth rate between these 3

countries.

3.

We were able to know the relationship between different variables of this 3 countries.

Limitations of the Study:

1.

The insufficiency of information is the main constraint of the study.

2.

Inexperience and time limitations created some obstacles.

3. Regular class schedule, assignments and examinations of other courses created some

problems.


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Country Overview

Bangladesh:

Bangladesh is located in Southern Asia, bordered by India to the north, west and east,

Myanmar to the southeast and the Bay of Bengal to the south. It is a parliamentary

democratic country. The countrys total land area is 143,998 sq. km out of which 130,168 sq.

km is land and 13,830 sq. km is water. Capital of Bangladesh is Dhaka. According to an

estimation of July 2013, Bangladesh has now a population of 163,654,860 and the population

growth rate is 1.59%. The ethnic group of Bangladeshi people is 98% Bengali and 2% others

which includes tribal group and non-Bengali Muslims. Bangladesh is a Muslim country;

89.5% Bangladeshi people are Muslim religious, 9.6% are Hindu and 0.9% is other religious

people. The mother language of Bangladeshi people is called Bangla. The literacy rate of

Bangladesh is 75.5%. Despite of political instability, poor infrastructure, corruption,

insufficient power supplies and slow implementation of economic reforms in Bangladesh, its

economy has grown 5.8% per year since 1996.


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Inflation Rate (2009-2013):

Figure 01: Inflation Rate in Bangladesh

In the above graph, we can see that the trend line of inflation rate of Bangladesh has gone

upwards from 2009 to 2011 but from 2011 to 2013, it went downwards.

Reasons:

Excess Money Borrowed:

In the last 5 years, government borrowed excess money from central bank to deal with

crisis. As a result, prices end up rising at an extremely high speed to keep up with the

currency surplus.

Wage Increase of Employment:

Wages in the major employment or in the public sector in Bangladesh has been increasing

for more than last two decades due to both strong and moderately strong labor union and

increased wages lead to the rising inflation from 2009 to 2011.

Exchange Rate Fluctuations:

Exchange rate fluctuations also caused the increase in inflation in Bangladesh like

depreciation of taka, rising import prices, growth of reserve money, etc.

2009 2010 2011 2012 2013

Series1 5.4 8.1 10.7 8.7 6.57

0

2

4

6

8

10

12

Percentage

Inflation Rate in Bangladesh


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Interest Rate (2009-2013):

Figure 02: Interest Rate in Bangladesh

In the above graph, we can see that the interest rate of Bangladesh was 7.6 percent in 2009;

then it consistently gone down during 2010, 2011 and 2012 and came down to 4.2 percent in

2012. Then again it went up in 2013 to 6 percent.

Reason:

Monetary Policy:

It means government has printed excess money. When more money is available to lenders

and borrowers, the interest rate gets lower and when the supply of money is lowered, this

tightens monetary policy and causes interest rates to rise like it did in 2013.

2009 2010 2011 2012 2013

Series1 7.6 6.1 5.3 4.2 6

0

1

2

3

4

5

6

7

8

Percentage

Interest Rate in Bangladesh


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GDP Growth Rate (2009-2013):

Figure 03: GDP Growth Rate in Bangladesh

The GDP growth rate in Bangladesh was 5.7 percent in 2009. Like the inflation rate, GDP

growth rate has also gone upward to 6.7 percent in between 2009 and 2011 and between 2011

and 2013, it again went down to 6 percent.

Reason:

Industrialization of Agricultural Sector:

The GDP growth was largely pushed by the industry sector which has exhibited average

growth rates in excess of GDP growth over the entire period. Over the last three years, it

grew at an average rate of 6.3%. The key to the growth of Bangladesh economy is in

more industrialization of agricultural sector.

2009 2010 2011 2012 2013

Series1 5.7 6.1 6.7 6.2 6.0

5.0

5.5

6.0

6.5

7.0

Percentage

GDP Growth Rate in Bangladesh


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United States of America (USA):

The United States of America (USA) is the world's leading economic and military powered

country with global interests and a supreme global reach. It is situated between Canada and

Mexico, bordering both the North Atlantic Ocean and the North Pacific Ocean. It has a total

area of 9,826,675 sq. km of which 9,161,966 sq. km is land and 664,709 sq. km is water. The

capital of USA is Washington DC. According to an estimation of 2013, USA contains a

population of 316,668,567 and the population growth rate is 0.9%. The nationality of the

people of USA is American. Different American people follow different religion. In USA

51.3% are Protestant religion followers, 23.9% Roman Catholic, 1.7% Mormon, other

Christian 1.6%, Jewish 1.7%, Buddhist 0.7%, Muslim 0.6%, other or unspecified 2.5%,

unaffiliated 12.1% and none 4%. The main language of American people is English but some

of them also speak Spanish and other languages. Their literacy rate is 99%. Their

Government type is Constitution-based federal republic; strong democratic tradition. The

United States is considered a developed, post-industrial country with a "capitalist mixed

economy" fueled by wide-ranging natural resources and a sustained period of global

economic dominance.


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Figure 04: Inflation Rate in USA

The inflation rate in USA was recorded 2.70% in 2009. Inflation Rate in the United States

went down from 2.7 to 1.5 in 2010 but in the very next year it again gone up to 3 percent.

From 2011 to 2013, the inflation rate is consistently gone down and came down to 1.5 in

2013.

Reasons:

Market Power:

They have the market power to manipulate the inflation rate. That means, they can

increase or decrease the inflation whenever they want.

Increase in Wage Rate:

The wage rate increases by 3-4% per year and when income rises, the prices of regular

commodities also rises in the same way.

Slow Bank Lending:

Another cause for inflation is that the bank lending of USA is slow because banks of USA

are under considerable inspection and observation from regulators that want to ensure that

the excessive lending does not collapse the entire financial system which happened in the

previous years.

2009 2010 2011 2012 2013

Series1 2.7 1.5 3 1.7 1.5

0

0.5

1

1.5

2

2.5

3

3.5

Percentage

Inflation Rate in USA


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Figure 05: Interest Rate in USA

The interest rate of USA has consistently gone down from 2.5 to 1.3 in between 2009 and

2012.

Reason:

Demand for Credit:

There was a decrease in the demand for credit in 2012 in USA. In 2013, the interest rate

increased by approximately 0.4 percent; it is because there was a slight increase in the

demand for credit. The US government also played a huge part in changing the interest

rate.

2009 2010 2011 2012 2013

Series1 2.5 2 1.5 1.3 1.7

0

0.5

1

1.5

2

2.5

3

Percentage

Interest Rate in USA


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Figure 06: GDP Growth Rate in USA

The GDP growth rate of USA was negative in 2009 and then it did a huge jump to 2.5% in

2010. In between 2011 and 2013, the interest rate has fluctuated by approximately 1%.

Reason:

Consumer Consumption:

A high GDP partially reflects citizensability to buy more than just their bare necessities

and can move on to things such as computers, high-end clothing and portable music

players. Moreover, the income and expenditures of US people are very high compared to

other developing countries.

2009 2010 2011 2012 2013

Series1 -2.8 2.5 1.8 2.8 1.9

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Percentage

GDP Growth Rate in USA


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France:

France is one of the most modern countries in the world and is a leader among European

nations. It is basically situated in Western Europe, bordering the Bay of Biscay and English

Channel between Belgium and Spain, southeast of the UK; bordering the Mediterranean Sea,

between Italy and Spain. The capital of France is Paris. France has an area of total 643,801

sq. km; 551,500 sq. km (metropolitan France) of which land is 640,427 sq. km; 549,970 sq.

km (metropolitan France) and wateris 3,374 sq. km; 1,530 sq. km (metropolitan France). The

total population of France is 65,951,611 and the population growth is 0.49%. The nationality

of the people of France is French. Their official language is French which is spoken by 100%

of the French people. According to a survey of 2003, their literacy rate is 99%. French people

are basically Roman Catholic; some of them are Protestant, Jewish, Muslim and unaffiliated.

The French economy is diversified across all sectors. The government has partially or fully

privatized many large companies, including Air France, France Telecom, Renault and Thales.

However, the government maintains a strong presence in some sectors, particularly power,

public transport, and defense industries. France is the most visited country in the world and

maintains the third largest income in the world from tourism.


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Figure 07: Inflation Rate in France

In the figure we can see that the inflation rate of France was negative in 2009 but in 2010 it

gone up to 1.505%. In 2011, again it increased to 2.117% but in 2012 it had a slight decrease.

On the other hand in 2013, it went down to below 1%.

Reason:

Cost Push Inflation:

Cost-Push inflation is currently affecting the French economy and causing not only rising

prices but also unemployment. This scenario happens when costs of production increases;

meaning the productivity would decline, causing a shift of the Aggregate Supply curve to

the left and because the supply of products falls, the prices of products rise. The increase

of price consequently results in increasing the inflation.

2009 2010 2011 2012 2013

Series1 -0.491 1.505 2.117 1.936 0.926

-1

-0.5

0

0.5

1

1.5

2

2.5

P

n

a

Inflation Rate in France


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Figure 08: Interest Rate in France

In the figure, we can see that the interest rate of France was 2.6% in 2009 but in 2010, it gone

up by 1% and resumed to 3.6%. From 2010 to 2013, the interest rate was fluctuating

insignificantly; means it was around 3.4% on average.

Reasons:

Fragile Economic Condition of France:

The French economy has slowed down in the last 5 years and its prospects remain fragile

and weak because of poor economic conditions in Europe and Frances lack of

competitiveness.

Economic Policies of The New President of France:

Frances economic recovery is the top priority of the new socialist president, Franois

Hollande. He wanted to achieve the goals by having new crisis management tools, the

European budget treaty, the banking union, etc. He also reformed tax by targeting high

household and corporate incomes. Also continue structural reforms to restore

competitiveness in the private sector, particularly in industry. So, because of this new

structural reform, the interest rate of France kept in a balanced way from 2010 to 2013,

means there was no significant change.

2009 2010 2011 2012 2013

Interest Rate 2.6 3.6 3.2 3.6 3.7

0

0.5

1

1.5

2

2.5

3

3.5

4

Percentage

Interest Rate in France


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Figure 09: GDP Growth Rate in France

The Gross Domestic Product (GDP) growth rate of France was not that much significant in

the last 5 years. This is why in terms of GDP; France fell down in the world ranking table.

Reason:

Consumer Consumption:

In France, a changing social attitudes towards consumption has been noticed. A major

element of GDP is consumer consumption, if that changes over time, GDP fluctuates in

that way.

2009 2010 2011 2012 2013

Series1 -3.1 1.7 2.0 0.0 0.2

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Percentage

GDP Growth Rate in France


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Answer to Questions Related to International Flow ofFunds

Answer to Question No: 01 & 02

US Trend:

Figure 10: Balance of Trade of USA (2013-2014)

The above figure is the balance of trade of USA during June 2013 to May 2014. We can see

from the above graph that they are facing negative trade balance which signifies trade deficit.

Though the size of the deficit has varied during the time period, it still possess a healthy sum

of deficit. So, we can come up with an opinion that USA is mostly an import oriented nation.

-50,000

-40,000

-30,000

-20,000

-10,000

0

DollarMillion

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14

Series1 -36,552 -39,419 -39,515 -42,263 -39,083 -35,972 -37,393 -40,052 -42,586 -44,176 -47,037 -44,392

Balance of Trade of USA


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Reasons:

Fluctuation in Dollar Value:

The dollar value has significantly fluctuated during the last 12 months which effected the

US balance of trade. During the first 6 months, the dollar value was significantly lower,

which increased their exports significantly and their balance of trade improved.

Moreover, on the later part of the time period, the dollar value raised again which reduced

their exports and also increased their trade deficit even more.

Economic Strength of USA:

The economic strength of USA has increased even more during the late 2013 to early

2014, which allowed them to import more from other nations. As a result, during

December 2013 to May 2014, their trade deficit has significantly increased.

Growth Among Trading Partners:

In the past, USA could not export that much because of the higher dollar value, their

product pricing and also because of the lack of trading partners that could afford such

expense but during the last year, many of the trading partners started to import more from

USA as their economic conditions improved than before. So, despite their higher pricing

and fluctuations in the dollar value, USA were able to export more, which reduced their

trade deficit during November 2013.


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France Trend:

Figure 11: Balance of Trade of France (2013-2014)

The above figure is the balance of trade of France during June 2013 to May 2014. We can see

from the above figure that they are facing negative trade balance which signifies trade deficit

but significantly in a less margin than USA. During this 12 months, there were significant

fluctuations in the balance of trade.

-7000

-6000

-5000

-4000

-3000

-2000

-1000

0

EURMillion


Series1 -4882 -5411 -5128 -5722 -4788 -5471 -5249 -5761 -3834 -4867 -3933 -4866

Balance of Trade of France


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Reasons:

High Level of Corporate Taxation:

The high level of corporate taxation in France is logically one of the principal causes of

the falling competitiveness of French industry on the global market and its growing trade

deficit. As the tax rate significantly increased during the late 2013 and the early 2014, it

discouraged different corporations both domestic and abroad to run their functions in

France. So, to meet the country demands, France heavily involved in import of different

products and services, which increased the trade deficit during January 2014.

Decline in Exports of Some Products:

During August 2013 to January 2014, exports declined because of the weaker sales of

metal products, chemicals, industrial machines and cars, which increased the trade deficit

for France even further.

Decreased Oil and Energy Prices:

France imports are mostly dominated by oil and energy. During February 2014, there was

a sharp drop in energy deliveries and oil prices which allowed France to import those in

less price than usual. As a result, their trade deficit decreased during February 2014.


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Bangladesh Trend:

Figure 12: Balance of Trade of Bangladesh (2013-2014)

The above figure is the balance of trade of Bangladesh during June 2013 to May 2014. We

can see that the balance of trade is negative but not in a big margin compared to USA and

France. There has been a lot of fluctuations during last 12 months which signifies that they

are not too much dependent on imports rather trying increase the exports as much as possible.

Still, we can see a significant amount of trade deficit in the last 8 months except March 2014.

Reasons:

Ramadan and Eid Effect:

As Bangladesh is a Muslim based country, the product demand for different food items

and clothingsincreases during Ramadan and Eid. So, to meet the domestic demand, the

government stops exporting some necessary items and starts to import more, which

eventually increased the trade deficit in May 2014.

Import Decreased:

In March 2014, imports of fuel oil, food items, capital goods, raw materials and other

necessary items for the industry has gone down significantly which reduced the trade

deficit of Bangladesh.

-120

-100

-80

-60

-40

-20

0

BDTBillion


Series1 -44.2 -49.4 -54.2 -37.9 -65.1 -74.2 -75.45 -96.53 -103.31 -56.78 -98.96 -103.76

Balance of Trade of Bangladesh


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Answer to Question No: 03, 04 & 05

Relationship between Percentage Change in Trade Balance and Exchange Rate of USA and

Bangladesh:

The relationship between the percentage change in trade balance and the exchange rate of

USA and Bangladesh is negatively related as their relationship value is -10.99516785.

Relationship between Percentage Change in Trade Balance and Exchange Rate of USA and

France:

The relationship between the percentage change in trade balance and the exchange rate of

USA and France is positively related as their relationship value is 1.985145705.

.


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Answer to Questions Related to I nternational F inancial

Markets

Answer to Question No: 01 (a & b)

Currency & Amount Direct Exchange Rate

BDT 1.00 $0.0129

1.00 $1.3430

Answer to Question No: 01 (c, d & e)

Currency & Amount Exchange Rate

1.00 BDT 104.0768

BDT 1.00 0.0096


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Answer to Question No: 01 (f)

EURO to USD:

The trend of the direct exchange rate of EURO is mostly gone upward as shown in thefollowing figure:

Figure 13: Direct Exchange Rate Trend of EURO (2010-2014)

Reasons for Abrupt Shifts:

Financial Crisis and Recession:

There was a financial crisis and recession during 2008-2010 when the Dollar sharply

appreciated which was a market response to the great uncertainty associated to these

economic troubles. As the economy gets stable from mid-2009 to mid-2010, the Dollar

started to depreciate again through the mid-2011.

Debt Crisis:

The uncertainty caused by the European sovereign debt crisis caused Dollar to appreciate

again through the end of 2011 but in the early of 2012, Dollar resumed its depreciation as

the Europe was getting financially normal.


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BDT to USD:

The direct exchange rate trend line of BDT of last 5 years went upward from 2010 to 2012;

but from 2012 it suddenly went downward.

Figure 14: Direct Exchange Rate Trend of BDT (2010-2014)

Reason for Abrupt Shifts:

Debt-Ceiling Crisis:

United States faced a debt-ceiling crisis in 2011 when there was an ongoing political

debate in the United States Congress about the appropriate level of government spending

and its significant impact on the national debt and deficit as their total trade deficit was

$539.514 billion, which clearly affected the abrupt shift in the direct exchange rate of

U.S. dollar in 2012.


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Answer to Question No: 01 (g)

USD to EURO:

The trend of the indirect exchange rate of EURO is mostly gone upward as shown in thefollowing figure:

Figure 15: Indirect Exchange Rate Trend of EURO (2010-2014)


Financial Crisis and Recession:

As we earlier mentioned, the financial crisis and recession during 2008-2010, when the

Dollar was appreciated the EURO was depreciated against the Dollar and again it

appreciated from mid-2010 to mid-2011. It faced depreciation again in the starting of

2012 but it clearly got its balance and appreciated throughout the year of 2014 as the

Europe was getting financially normal.


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USD to BDT:

The indirect exchange rate trend line of BDT of last 5 years went downward from 2010 to

2012; but from 2012 it suddenly went upward.

Figure 16: Indirect Exchange Rate Trend of BDT (2010-2014)


Movement in Net Exports:

The sharp appreciation of USD has been seen in late 2011 to Jan 2012 against BDT, due

to the movement of net exports. An increase in net export increases the demand for

foreign exchange and puts pressure on BDT exchange rate against the USD.

Inward Remittance:

The percentage of inward remittance has been doubled during 2003-2012, which has been

an important source of foreign exchange from the supply side of the foreign exchange

market; as the supply of the BDT has been increased during 2012 and the currency has

been depreciated.


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Comparison between Direct Exchange Rate Trend Line and Indirect Exchange Rate Trend

Line:

Our basic currency is USD and the counter currency is the EURO and BDT. Bycomparing the trend of direct exchange rate and indirect exchange rate of USD, we can

see that whenever the trend of direct exchange rate appreciated against Dollar, the trend

of indirect exchange rate depreciated against EURO or BDT in the same way.

That means, in the last 5 years, whenever EURO and BDT currency became strong

against USD; that means USD got weaken against EURO and BDT, both of the trend line

rapidly fluctuated in the opposite direction.

When EURO and BDT appreciated against USD; means EURO and BDT became

stronger, it lead to exports becoming more expensive and imports cheaper for France and

Bangladesh. On the other hand when EURO and BDT depreciated against USD; the

exports became cheaper and imports more expensive.

When the EURO and BDT was depreciated in the trend; this would have been the

cheapest time for an American to visit France and Bangladesh or to purchase products

from these two countries but when EURO and BDT got strong against the USD; this

would have been the time when Frenchman or a Bangladeshi would have found the US

cheaper.

Answer to Question No: 01 (h)

Currency Percentage Change Over the Last Full Year

EURO 6.3294%.

BDT 3.4320%


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Answer to Question No: 01 (i)

Currency Percentage Change Over the Last Full Year

BDT 6.9026%

As the value of BDT has risen to 6.9026% per EURO so BDT has devalued or depreciated

over this period against EURO. In other words, EURO has appreciated against BDT over this

period.

Answer to Question No: 01 (j)

Indirect in US:

Currency Bid-Ask Spread

EURO 0.01338%

BDT 0.1609%

Direct in US:

Currency Bid-Ask Spread

EURO to USD 0%

BDT to USD 1.5385%


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Answer to Question No: 02

Exchange Rate Pattern Currency Exchange Rate

Direct 1.00 $1.3430

Indirect $ 1.00 0.7446

Relationship between Direct and Indirect Exchange Rate:

The relationship between direct exchange rate and the indirect exchange rate of EURO is

simply the give-and-take. For example, if an American wants to buy EURO in exchange ofDollar, then it is indirect exchange rate but he or she wants to sell EURO in exchange of

Dollar, then it is direct exchange rate. Similarly in U.S. perspective, the direct exchange rate

of BDT is, BDT 1 is equal to $0.0129 and the indirect exchange rate of BDT is, $1 is equal to

BDT 77.70; means if an American wants to buy BDT in exchange of Dollar, then it is

indirect exchange rate but he wants to sell BDT in exchange of Dollar, then it is direct

exchange rate.


Bangladeshi importers need BDT 104.35to convert into a EURO to purchase French product

today. On the other hand, it will take 0.0096 EUROto convert into 1 BDT. The relationship

between these cross exchange rates is if a Frenchman wants to buy Bangladeshi products in

BDT, then he has to pay 0.0096 EURO for each Bangladeshi taka. Similarly, if a Bangladeshi

wants to buy French products in EURO, then he has to pay BDT 104.35 for each EURO.


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Answer to Questions Related to Exchange RateDetermination


Current Situation of EURO against USD:

Figure 17: Exchange Rate of EURO for $1

From the above figure we can see that, the overall trend is downward sloping. It signifies that

the value of EURO is gaining strength or it is getting appreciated against Dollar.

Reasons:

Controlled Bond Yield than Before:

Up until 2012, there were concerns over the liquidity of many sovereign European

countries. Bond yields in countries such as Ireland, Italy, Portugal and Spain were rising

to dangerous levels. Since 2012, the ECB has been more willing to act and intervene in

the bond markets. This has helped reduce bond yields, giving more confidence in holding

EURO securities. The worst fears of the EURO bond crisis have eased, causing an

appreciation in the EURO.

Low Inflation:

Low inflation does make a currency more attractive. In the long term, relative inflation

rates play an important role in determining the level of a currency. As prices in Europe

are rising at a slower rate than USA, European goods become relatively more attractive

0.65

0.70

0.75

0.80

0.85

Jun-12

Jul

Aug

Sep

Oct

Nov

Dec

Jan-13

Feb

Mar

Apr

May Ju

nJul

Aug

Sep

Oct

Nov

Dec

Jan-14

Feb

Mar

Apr

May

Exchange Rate of EURO for 1


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and therefore, there is higher demand for EURO. Europe has one of the lowest inflation

rates in the world, so its goods are relatively competitive.

Signs of Improving Economic Activity:

Another reason for the relative strength of the EURO against Dollar are signs of

improving economic activity. Though the European unemployment is still at critical

levels but investors often look for small signs of the economy turning the corner. They

may think that signs of improved private sector activity leads to the possibility of future

growth; therefore in the medium or long-term, there is the prospect of a return to more

normal economic activity and therefore higher interest rates.

Improved Trade Deficit:

The overall trade deficit of the European countries has decreased within the time from

2008 to 2013 in comparison to USA. The domestic demand reduced imports while the

success of their efforts to become competitive helped their exports. As a result, value of

EURO has appreciated against Dollar.


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Current Situation of BDT against USD:

Figure 18: Exchange Rate of BDT for $1From the above figure we can see that, the overall trend is downward sloping. It signifies that

the value of BDT is gaining strength or it is getting appreciated against Dollar during the last

24 months.

Reasons:

Increase in Remittance and Exports:

In the month of July 2014, Bangladesh Bank has disclosed a record $1.48 billion inflow

of remittance. Moreover, in the fiscal year 2013-14, Bangladesh has earned $30.18 billion

from exports, which signifies that Bangladesh is becoming more involved in exports

rather than imports. As a result, because of the high inflow of remittance and export

revenue, the reserve of the foreign currency is increasing which touched to a record $22

billion milestone in August 2014, which is appreciating BDT against Dollar.

Large Amount of Foreign-Aid:

During the fiscal year 2012-13, Bangladesh has received a significant amount of foreign-

aids for different development projects and for other reasons, which appreciated the value

of BDT against Dollar.

Less Demand for USD:

During the period from 2011-2014, the imports have significantly reduced for

Bangladesh. During this time, Bangladesh started to export more and import less unless

necessary, which made the Dollar demand low within the country. As a result, the BDT

appreciated against US Dollar.

BDT 72.00

BDT 74.00

BDT 76.00

BDT 78.00

BDT 80.00

BDT 82.00

Jun-12

Jul

Aug

Sep

Oct

Nov

Dec

Jan-13

Feb

Mar

Apr

May Ju

nJul

Aug

Sep

Oct

Nov

Dec

Jan-14

Feb

Mar

Apr

May

Exchange Rate of BDT for 1


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Co-relationship between USD & BDT:

The co-relationship between USD and BDT of the last 24 months is -0.940503376 which is

closer to -1. This means, BDT moves in the opposite direction relative to USD at the

maximum occasion.

Co-relationship between USD & EURO:

The co-relationship between USD and EURO of the last 24 months is -0.999320406which is

pretty closer to -1. This means, EURO moves in the opposite direction relative to USD at the

maximum occasion.


Comparison between the Standard Deviation of EURO and BDT:

Figure 19: Comparison between the Standard Deviation of Euro and BDT

From the above figure we can say that, EURO is more volatile than BDT, as the standard

deviation of Euro is 2.3196 which is higher than the standard deviation of BDT which is

0.8294.

0.0000

0.5000

1.0000

1.50002.0000

2.50002.3196

0.8294

P

n

a

h

n

1

Standard Deviation of Euro 2.3196

Standard Deviation of BDT 0.8294

Comparison between Standard Deviation


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Conclusion

We have analyzed the economics of USA, France and Bangladesh by using different

financial tools. We have analyzed their inflation rate, interest rate, GDP growth rate, their

trade balance and exchange rate in order to figure out its fluctuation with reasons and also

to figure out whether we can find any sort of relationship with them or not. In the overall

sense, USA and France are more in a driving position than Bangladesh but as a

developing country, it is emerging well. Still all of the 3 nations have problems of their

own like USA and France has large trade deficit and Bangladesh is still struggling to

increase their exports. So, in our opinion, all 3 nations should focus to improve their trade

balance because if they can reduce their trade deficits, ultimately it will improve their

currencies and their economy.


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Appendix

Tables & Calculations Related to International Flow of Funds

Balance of Trade

(2013 - 2014)

Month France Bangladesh USA

(EUR Million) (BDT Billion) (Dollar Million)

Jun-13 -4882 -44.2 -36,552

Jul-13 -5411 -49.4 -39,419

Aug-13 -5128 -54.2 -39,515

Sep-13 -5722 -37.9 -42,263

Oct-13 -4788 -65.1 -39,083

Nov-13 -5471 -74.2 -35,972

Dec-13 -5249 -75.45 -37,393

Jan-14 -5761 -96.53 -40,052

Feb-14 -3834 -103.31 -42,586

Mar-14 -4867 -56.78 -44,176

Apr-14 -3933 -98.96 -47,037

May-14 -4866 -103.76 -44,392


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USA & BANGLADESH

Month Trade Balance % Change in Trade Balance Direct Exchange Rate % Change in Exchange Rate

May-12

-335.6BDT 80.3942

Jun-12 -335.2 -0.12 BDT 80.6379 0.30

Jul-12 -426.8 27.33 BDT 80.0460 -0.73

Aug-12 -397.3 -6.91 BDT 80.3554 0.39

Sep-12 -350.7 -11.73 BDT 80.4860 0.16

Oct-12 -316.1 -9.87 BDT 80.8540 0.46

Nov-12

-336.2 6.36 BDT 79.7677 -1.34

Dec-12 -257.3 -23.47 BDT 79.9737 0.26

Jan-13 -463.4 80.10 BDT 78.3350 -2.05

Feb-13 -398.3 -14.05 BDT 78.1932 -0.18

Mar-13 -394.7 -0.90 BDT 77.4110 -1.00

Apr-13 -369.9 -6.28 BDT 76.5920 -1.06

May-13

-384.1 3.84 BDT 76.5220 -0.09

Jun-13 -348.0 -9.40 BDT 76.2622 -0.34

Jul-13 -445.0 27.87 BDT 77.7500 1.95Aug-

13-472.0 6.07 BDT 76.5119 -1.59

Sep-13 -365.7 -22.52 BDT 76.4620 -0.07

Oct-13 -431.9 18.10 BDT 76.1265 -0.44

Nov-13

-302.1 -30.05 BDT 76.1076 -0.02


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Dec-13 -271.9 -10.00 BDT 76.4450 0.44

Jan-14 -420.2 54.54 BDT 76.2613 -0.24

Feb-14 -236.0 -43.84 BDT 76.6017 0.45

Mar-14 -235.4 -0.25 BDT 76.1827 -0.55

Apr-14 -384.7 63.42 BDT 76.2626 0.10

May-14

-333.7 -13.26 BDT 76.5362 0.36


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Regression Statistics

Multiple R 0.310616451R Square 0.096482579Adjusted R Square 0.055413606

Standard Error 28.53279597Observations 24

ANOVAdf SS MS F Significance F

Regression 1 1912.598089 1912.598089 2.349281483 0.13959616Residual 22 17910.64981 814.120446

Total 23 19823.2479

Coefficients

Standard

Error t Stat P-value Lower 95% Upper 95%

Lower

95.0%

Upper

95.0%

Intercept 1.326775935 6.000742806 0.22110195 0.827052274 -11.11800296 13.77155483 -11.118003 13.77155483

X Variable 1-

10.99516785 7.173553404-

1.532736599 0.13959616 -25.87220706 3.881871356 -25.8722071 3.881871356


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USA & FRANCE

Month Trade Balance % Change in Trade Balance Direct Exchange Rate % Change in Exchange Rate

May-12

-551.3 0.7555

Jun-12 -792.3 43.71 0.8076 6.90

Jul-12 -1286.2 62.34 0.7893 -2.27

Aug-12 -859.2 -33.20 0.8141 3.14

Sep-12 -664.6 -22.65 0.7969 -2.11

Oct-12 -1179.5 77.48 0.7776 -2.42

Nov-12 -1120.1 -5.04 0.7708 -0.87

Dec-12 -925.6 -17.36 0.7693 -0.19

Jan-13 -756.9 -18.23 0.7573 -1.56

Feb-13 -952.6 25.86 0.7370 -2.68

Mar-13 -1220.3 28.10 0.7621 3.41

Apr-13 -1362.6 11.66 0.7800 2.35

May-13

-1085.0 -20.37 0.7627 -2.22

Jun-13 -888.5 -18.11 0.7686 0.77

Jul-13 -1834.7 106.49 0.7685 -0.01

Aug-13 -775.8 -57.72 0.7536 -1.94Sep-13 -901.2 16.16 0.7562 0.35

Oct-13 -1640.6 82.05 0.7402 -2.12

Nov-13 -1015.1 -38.13 0.7314 -1.19

Dec-13 -1529.7 50.69 0.7357 0.59

Jan-14 -901.9 -41.04 0.7253 -1.41

Feb-14 -1415.9 56.99 0.7389 1.88


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Mar-14 -1650.0 16.53 0.7271 -1.60

Apr-14 -1426.6 -13.54 0.7263 -0.11

May-14

-1221.3 -14.39 0.7229 -0.47

Regression Statistics

Multiple R 0.104724841R Square 0.010967292

Adjusted R Square -0.03398874

Standard Error 44.71144761

Observations 24

ANOVA

df SS MS F Significance F

Regression 1 487.6956794 487.6956794 0.243955967 0.626258736

Residual 22 43980.49805 1999.113548

Coefficients

Standard

Error t Stat P-value Lower 95% Upper 95%

Lower

95.0%

Upper

95.0%Intercept 11.91005519 9.148835912 1.301810996 0.206447801 -7.06346921 30.88357959 -7.06346921 30.88357959

X Variable 1 1.985145705 4.019172679 0.493918989 0.626258736 -6.35010827 10.32039968 -6.35010827 10.32039968


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Tables & Calculations Related to International Financial Markets

1. .

a) .

$1.00 =

BDT77.70

So, BDT 1.00 = $ (1.00/77.70)

=$0.0129

b) .

$1.00 =

0.7446

So, 1.00 = $ (1.00/0.7446)

=$1.3430

c)

.

0.7446 =BDT

77.70

So, 1.00 = BDT (77.70/0.7446)

=BDT

104.35

d)

.

1.00 =BDT104.0768

So, BDT 1.00 = (1.00/104.0768)

=

0.0096

h)

Percentage change in EUR in terms ofUSD = (0.7631-0.7148)/0.7631

= 6.3294%

Percentage change in BDT in terms ofUSD = (79.400-76.675)/79.400

= 3.4320%


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41

i).

Percentage change in BDT in terms ofEUR =

(109.0532-101.5257)/109.0532

= 6.9026%

j)

Indirect in US

EUR

Bid Rate = 0.7456

Ask Rate = 0.7457

= = (0.7457-0.7456)/0.7457

Bid/Ask Spread = 0.0134%

Indirect in US

BDT

Bid Rate = BDT 77.5550

Ask Rate = BDT 77.6800

= = (77.68-77.555)/77.68


Direct in US

EUR to USD

Bid Rate = $ 1.3411

Ask Rate = $ 1.3411

= = (1.3411-1.3411)/1.3411


Direct in US

BDT to USD

Bid Rate = $ 0.0128

Ask Rate = $ 0.0130

= = (0.0130-0.0128)/0.0130



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42

Tables & Calculations Related to Exchange Rate Determination

Foreign Exchange Rates - Monthly

Month USA (USD)

France

(Euro)

% Change

in Euro

Bangladesh

(BDT)

% Change in

BDT

May-12

$ 1.00 0.76 BDT 80.39

Jun-12 $ 1.00 0.81 6.8961 BDT 80.64 0.3031

Jul $ 1.00 0.79 -2.2660 BDT 80.05 -0.7340

Aug $ 1.00 0.81 3.1420 BDT 80.36 0.3865

Sep $ 1.00 0.80 -2.1128 BDT 80.49 0.1625

Oct $ 1.00 0.78 -2.4219 BDT 80.85 0.4572

Nov $ 1.00 0.77 -0.8745 BDT 79.77 -1.3435

Dec $ 1.00 0.77 -0.1946 BDT 79.97 0.2582

Jan-13 $ 1.00 0.76 -1.5599 BDT 78.34 -2.0490

Feb $ 1.00 0.74 -2.6806 BDT 78.19 -0.1810

Mar $ 1.00 0.76 3.4057 BDT 77.41 -1.0003

Apr $ 1.00 0.78 2.3488 BDT 76.59 -1.0580

May $ 1.00 0.76 -2.2179 BDT 76.52 -0.0914

Jun $ 1.00 0.77 0.7736 BDT 76.26 -0.3395

Jul $ 1.00 0.77 -0.0130 BDT 77.75 1.9509

Aug $ 1.00 0.75 -1.9388 BDT 76.51 -1.5924

Sep $ 1.00 0.76 0.3450 BDT 76.46 -0.0652

Oct $ 1.00 0.74 -2.1158 BDT 76.13 -0.4388

Nov $ 1.00 0.73 -1.1889 BDT 76.11 -0.0248

Dec $ 1.00 0.74 0.5879 BDT 76.45 0.4433

Jan-14 $ 1.00 0.73 -1.4136 BDT 76.26 -0.2403

Feb $ 1.00 0.74 1.8751 BDT 76.60 0.4464

Mar $ 1.00 0.73 -1.5970 BDT 76.18 -0.5470

Apr $ 1.00 0.73 -0.1100 BDT 76.26 0.1049

May $ 1.00 0.72 -0.4681 BDT 76.54 0.3588

=STDEV(D4:D27) =STDEV(F4:F27)

2.3196 0.8294


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Co-relationship Between USD & BDT

Month USA (USD) Bangladesh (BDT)

Jun-12 $ 0.0120 BDT 80.6379

Jul-12 $ 0.0121 BDT 80.0460Aug-12 $ 0.0120 BDT 80.3554

Sep-12 $ 0.0120 BDT 80.4860

Oct-12 $ 0.0120 BDT 80.8540

Nov-12 $ 0.0121 BDT 79.7677

Dec-12 $ 0.0121 BDT 79.9737

Jan-13 $ 0.0123 BDT 78.3350

Feb-13 $ 0.0124 BDT 78.1932

Mar-13 $ 0.0125 BDT 77.4110

Apr-13 $ 0.0126 BDT 76.5920

May-13 $ 0.0126

BDT 76.5220

Jun-13 $ 0.0127 BDT 76.2622

Jul-13 $ 0.0129 BDT 77.7500

Aug-13 $ 0.0126 BDT 76.5119

Sep-13 $ 0.0126 BDT 76.4620

Oct-13 $ 0.0127 BDT 76.1265

Nov-13 $ 0.0127 BDT 76.1076

Dec-13 $ 0.0126 BDT 76.4450

Jan-14 $ 0.0127 BDT 76.2613Feb-14 $ 0.0126 BDT 76.6017

Mar-14 $ 0.0127 BDT 76.1827

Apr-14 $ 0.0127 BDT 76.2626

May-14 $ 0.0126

BDT 76.5362

-0.940503376


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Co-relationship Between USD & EURO

Month USA (USD) France (Euro)

Jun-12 $ 1.2381 0.8076

Jul-12 $ 1.2660 0.7893Aug-12 $ 1.2282 0.8141

Sep-12 $ 1.2547 0.7969

Oct-12 $ 1.2854 0.7776

Nov-12 $ 1.2972 0.7708

Dec-12 $ 1.2996 0.7693

Jan-13 $ 1.3203 0.7573

Feb-13 $ 1.3566 0.7370

Mar-13 $ 1.3120 0.7621

Apr-13 $ 1.2816 0.7800

May-13 $ 1.3110

0.7627

Jun-13 $ 1.3010 0.7686

Jul-13 $ 1.3007 0.7685

Aug-13 $ 1.3268 0.7536

Sep-13 $ 1.3218 0.7562

Oct-13 $ 1.3508 0.7402

Nov-13 $ 1.3671 0.7314

Dec-13 $ 1.3589 0.7357

Jan-14 $ 1.3786 0.7253Feb-14 $ 1.3532 0.7389

Mar-14 $ 1.3751 0.7271

Apr-14 $ 1.3767 0.7263

May-14 $ 1.3832

0.7229

-0.999320406


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Financial Analysis Between Three Countries

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