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Premier University[B.B.A]

Money and Capital MarketPresentation Subject

Money Market and Capital Market participation for industrialization in Bangladesh

Submitted toAssistant Professor: Mrs.Tanbina Tabassum

Department of FinanceFaculty of Business Administration

Premier University, Chittagong.

Semester: 8th Section: “A” Batch :22nd

Department : Finance

Group Name: D

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Presenters Profile

NO ID NAME

11022114412

Md. Ariful Islam Saimon Chowdhury

21022114372

Md.Shahadat Hossain

3 1021114362 Imteaj Ibna Hossain

41022114406

Md.Towky Uddin

51022114384

Md.Shazzad Hossain

61022114600

Shuvashis Sarkar

Capital markets are essentially about matching the needs of investors with those that need capital for development. Bangladesh has no shortage of both parties a young and a dynamic population that increasingly wants, and is able to, make provision for lifetime events, to save for children’s education, for the possibility of ill health and ultimately for old age and retirement. On the other side of the equation, Bangladesh has a pressing need for investment resources to bolster its stretched infrastructure resources, to build more power stations , bridges, ports and gas-pipelines to empower the people in the development of enterprise and the creation of jobs. Debt markets are an extremely effective mechanism for matching the long term needs of savers with those of entrepreneurs

Money Market an integral part of the financial market of a country. It provides a medium

for the redistribution of short term loan able funds among financial institutions, which perform this function by selling deposits of various types, certificate of deposits and discounting of bills, treasury bills etc. The participants in the money market are: the central bank, commercial banks, the government, finance companies, contractual saving institutions like the pension funds, insurance companies, savings and loan associations etc. The instruments that are generally traded in the money market constitute: treasury bills, short-term central bank and government bonds, negotiable certificates of deposits, bankers acceptances and commercial papers like the bills of exchange and promissory notes, mutual funds etc.

Financial Market

To understand the importance of money and capital market in Bangladesh.

To find the Relation of money and capital market with Industrialization.

To know the present situation of capital market and money market.

To understand the scope of money and capital market. What is the role of money and capital market in the growth of

economy? To know the history of money and capital market. To see the activities of capital market.

Objectiveof

The Money Market and Capital Market participation for industrialization in Bangladesh

• Capital market started in USA at Wall Street in 1653• The origin of stock market in Bangladesh goes back to April 28, 1954 • when a stock exchange was formed under the name East Pakistan Stock Exchange Association

at Narayanganj• Trading started in 1956. It was renamed East Pakistan Stock Exchange Ltd• Transferred to Dhaka in 1958 and again renamed Dhaka Stock Exchange Ltd in 1964• Trading remained suspended during the Liberation War in 1971• The Dhaka Stock Exchange resumed operation in 1976 with nine listed companies as against

452 today• Capital market in Bangladesh got momentum with the establishment of Securities and

Exchange Commission in1994• A big wing was added to the capital market with the incorporation of Chittagong

Stock Exchange on April 1, 1995. Operation of CSE started on October 10, 1995.

History of capital market

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Participants of capital market may be discussed in groups because of their similar activities.

Loan provider Loan takers Financial intermediaries Service organizations Regulatory organizations:

Participants in capital Market

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Capital Market in Bangladesh

Chittagong Stock Exchange (CSE)

Dhaka Stock Exchange (DSE)

Security exchange commission (SEC)

OTHERS

Structure of capital Market in Bangladesh

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The foundation of Capital market in Bangladesh was Dhaka stock exchange , which was first named East Pakistan Stock. The Dhaka Stock exchange started its operation in 1971 with only 9 listed companies. Since then DSE perform a vital role in providing long term capital for organizations and growth of industrialization and economy. At present the number of listed company in DSE is 300. In fiscal year 2013-14 companies raised from DSE. The descriptive statistics of total listed companies in DSE shows that the minimum and maximum numbers of listed companies of DSE were 9 and 750 respectively with an average mean value of listed companies was 232 based on the last 41 years information.

Dhaka Stock Exchange

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Listing of Companies that need capital. Providing the screen based automated trading of listed Securities of listed company so

that investor can recognize the organization that can take part in economic development. Settlement of trading of securities that is selling the share and providing the capital to the

share issued company. Granting approval to the transaction Market Administration & Control ( This is a vital function of DSE. It always monitor the

market to correctly execute the role of raising capital, providing income to the investor and take immediate measure if any default is emerged.)

Market Surveillance Publication of Monthly Review Monitoring the activities of listed companies Investor’s grievance Cell Investors Protection Fund Announcement of Price sensitive or other information about listed companies through

online

Functions of DSE

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Category of companies in DSE

Category Properties

A Holding Annual Meetings (AGM) and have declared dividend at the rate 10 percent or more in a calendar year

B Holding Annual Meetings (AGM) and have declared dividend less at the rate 10 percent or more in a calendar year

G Greenfield companies

N All new listed companies except Greenfield companies

Z Have failed to hold the AGM or fail to declare any dividend or which are not in operation continuously.

Market Capitalization Ratio

Between FY 1995-96 and FY 2008-09, market capitalization stayed between 4 to 20 percent. In FY1995-96, the rate of market capitalization was 4.77 percent while in FY 2004-05, it reached at 5.72 percent. After this period, the rate of market capitalization increased at a smooth rate and in FY 2008-09; the market capitalization ratio reached at 16.29 percent. But after that year, market capitalization ratio doubled than that of the previous year and reached at 32.79 percent in FY2009-10 and finally in FY 2010-11, the market capitalization rate became 29.55 percent.

Dhaka Stock Exchange

Dhaka Stock Exchange

Difference Between Micro and Macro Economics

To make the capital market more lucrative, secure and formal finance ministry of Bangladesh introduced The Securities and Exchange Commission (SEC) in 1993. It has the supreme authority of capital market of Bangladesh. It is responsible for improving capital market by developing facilities for both investors and companies and ensuring the efficient and effective management of capital market. SEC virtually controls the capital from households to corporate bodies there by helping Industrialization and creating employment.

Securities and Exchange Commission

Difference Between Micro and Macro EconomicsRole in promoting industrialization through

improvement of capital market

It secures the investment of investor so they are more and more interested in

investment which is then converted into the capital for industries and

organization.

It ensures a convenient environment for both investor and companies so they

can achieve their interest (income for investor capital for companies).

It monitors, investigate and control the capital market to create a lucrative

situation in capital market.

To minimize risk of investment it protects frauds and other misdeeds.

Difference Between Micro and Macro EconomicsFunctions of SEC

•Regulating the business of stock exchange securities market •Registering and regulating the business of stock-brokers, sub-brokers, share transfer agent, bankers and managers to an issue, underwriters, portfolio managers, investment advisers and other intermediaries in the securities market•Registering, regulating and monitoring of collective investment schemes including all forms of mutual funds•Prohibiting fraudulent and unfair trading practices securities or any securities market•Promoting investors education and training of all intermediaries of securities market•Prohibiting insider trading in securities•Regulating substantial acquisition of shares or stocks and take-over of companies•Compiling, analyzing and publishing indices on the financial performance of any issuer securities•Conducting research and publishing information for the above purpose

Chittagong Stock Exchange

The Chittagong Stock Exchange (CSE) was registered as a public limited company and incorporated on 1st April 1995.In the backdrop of a strong need to institute a dynamic automated and transparent stock exchange in the country, 70 reputed business personalities established this bourse in the commercial capital Chittagong. Only 30 securities were listed on the first day trade when market capitalization stood at $0.2 billion. The trading operations of the exchange are fully automated from 1998. CSE is a self-regulated non-profit organization. respectively. The total number of securities listed with the Chittagong Stock Exchange in April 2015 stood at 250. As of April 2015 market capitalization of all securities stood at Tk.2,34,000 crore. To enhance the capitalization process it introduced internet based trading system in 2004.And it helps CSE to capture more investor in a short possible time.

Objective of CSE

Develop a strong platform for entrepreneurs raising capital•Provide a fully automated trading system with most modern amenities to ensure quick, easy, accurate transactions and easily accessible to all;•Undertake any business relating to the Stock Exchange, such as a clearing house, securities depository centre or similar activities;•Develop a professional service culture through mandatory corporate membership;•Provide an investment opportunity for small and large investors;•Attract non-resident Bangladeshis to invest in Bangladesh stock market;•Collect preserve and disseminate data and information on stock exchange;•Develop a research cell for analyzing status of the market and economy •Increase business turnover

•Modernize trading system

•Ensure effective relationship management

• Achieve high level of confidence & professionalism

• Engage in product and market diversification

• Contribute to capital market policy development

• Ensure exchange related quality services

Number of industries getting capital from CSE

SL Industry name Number of company1 Bank 292 Cement 73 Ceramic 54 Corporate Bond 25 Debenture 16 Energy 167 Engineering and electrical 258 Foods And Allied 129 General insurance 29

10 ICT 611 Leasing And Finance 2212 Leather and footwear 513 Life insurance 1214 Miscellaneous 1215 Mutual Fund 4116 Paper and printing 417 Pharma and Chemicals 2218 Service and property 719 Telecommunication 220 Textiles and clothing 35

Money market and its Activities in Bangladesh

The money market in Bangladesh is in its transitional stage. The various constituent parts of it are in the process of formation, while continuous efforts are being made to develop appropriate and adequate instruments to be traded in the market. At present, government treasury bills of varying maturity, Bangladesh Bank Bills and Certificates of Deposits etc in limited supply are available for trading in the market. However, the short-term credit market of the banking sector experienced a tremendous growth since liberation. In 1999, a total of about 6000 branches of the scheduled banks provided short-term credit throughout the country in the form of cash credit, overdraft and demand loan. The rates of interest are determined by the individual banks and as such the market is quite competitive. Each bank maintains its liquidity and supply of fund is arranged throughout the country with the help of an interconnected network of branches. Bangladesh bank as central bank of the country exercises its role in this market through the use of instruments such as bank rate, open market operations and changes in statutory liquidity requirements.

The money market of Bangladesh reached its present phase through a series of changes and evolution. Initially, after liberation, money market was the major constituent part of the financial market of the country. Capital market, its other segment was a relatively smaller part. All financial institutions of the country were nationalized after liberation. The growth and evolution of money market in the country took place during the period from 1971 to the early eighties under various sets of interventionist rules and regulations of the government and as such it could hardly reflect the actual market conditions. However, in this period a vast financial superstructure with large network of commercial bank branches was established in the country. Simultaneously, specialized financial institutions under government sector also emerged with the objective of mobilizing financial resources and channeling them for short, medium and long-term credit and investments. The market participants had to operate in an environment of directed lending and loan disbursement goals, and predetermined rates of interest fixed by the authority. However, rate of interest in the call market was flexible but due to prevalence of liberal refinance facility at concessional rates from Bangladesh Bank, the activities of call money market remained insignificant.

In the beginning of the 1980s, money market in Bangladesh entered a new era with the denationalization of two nationalized banks and establishment of some private banks. With this development money market assumed the characteristics of a competitive market in the country. However, the administered interest rate structure and the government's policy of priority sector lending continued to operate as factors that deterred the development of a liberalized money market in the country.

Money Market Participants

In the perspective of Bangladesh the money market participants are :

Government treasury department Central Bank/Bangladesh bank Commercial Bank Business Investment and Security Firms

O Investment companies O Finance companiesO Insurance companiesO Pension funds

Individuals

Money Market InstrumentsName of Instruments

Time period

Money market Securities

Issued by CommonInvestor

CommonMaturities

Treasury bills Federal Government Households, firmsand financialinstitution

13 weeks, 26weeks. 1 year

Retail certificates of deposit (CDs

Banks and savinginstitutions

Households 7 Days to 5 years Or longer

Negotiable certificates of deposit (NCDs)

Large banks andsaving Institutions

firms 2 weeks to 1 year

Commercial paper Bank holdingcompanies, financecompanies andother companies

Firms 1 day to 270 days

EurodollarDeposit

Banks locatedoutside the country

Firms and government

1 day to 1 year

Banker’sAcceptances

Banks ( exportingfirm can sell theacceptance at adiscount obtainfunds

Firms 30 days to 270 days

Federal funds Depositoryinstitutions

Depository institution

1day to 7days

RepurchaseAgreement

Firms andfinancialinstitutions

Firms and financial institution

1day to 15 days

• Price manipulation: It has been observed that the share values of some profitable companies have been increased fictitiously some times that hampers the smooth operation of market.

• Delays in settlement: Financing procedures and delivery of securities sometimes take an unusual long time for which the money is blocked for nothing.

• Irregulations in dividends: Some companies do not hold Annul General Meeting (AGM) and eventually declare dividends that confused the shareholders about the financial positions of the company.

• Selection of membership: Some members being the directors of listed companies look for their own interest using the internal information of share market.

• Improper financial statement: Many companies do not focus real position of the company as preparing financial statements. As a result the Shareholders as well as investors do not have any idea about position of that company.

• The intrinsic value[13] for the securities traded are sometimes estimated without considering the current market prices of the securities.

• Lack of skilled manpower in the capital market as well as financial and non-financial institutions involved in the securities market.

• The lack of proper policy framework that provides incentives and protection to investors. • The dominance of bigger public sector and borrowing of public sector as well as government from the

institutional sources rater than the market

Problems Involved in Capital market

Smooth Operation in the Primary Market Margin Loan Ratio. Rumors Market Volatility Fair Value of Share  Incentives for Issuers.  Advertisement. Foreign Portfolio Investments Securities and Exchange Commission Stock Exchange  Registrar of Joint Stock Company and Firms (RJSCF) Government Initiatives  Corporate bond Market

Recommendation

From the above analysis we can see that in Bangladesh capital market is more important then money market for the industrialization. Capital market is now a major sector for capitalization. Since capital market emerged in Bangladesh it changes the prospect of organization for capital. It connect the mass people to the industry so that more and more firm can be financed.

Money market is less important for capitalization but it provides a short term fund which is needed for run the operation of organization. So we can say that capital market is needed for foundation of organization and money market is needed for running the organization

. So both market have to be controlled and developed for the industrialization of Bangladesh.

Conclusion

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