presented by Abdul Hameed Baloch BM-25011 



Unit of exchange, facilitating the transfer of goods and/or services. It is one form of money, where money is anything that serves as a medium of exchange, a store of value, and a standard of value. Currencies are the dominant medium of exchange.


Reduction in the value of the currency with respect to other monetary units. Official lowering of the value of a country’s currency within a fixed exchange rate system to set a new fixed rate with respect to a foreign reference country. Depreciation: Unofficial decrease in the exchange rate in a floating exchange rate system.

Currency’s value is matched to the value of another single or basket of other currencies, or to another measure of value, such as Gold. Under a fixed exchange rate system, devaluation and revaluation are official changes in the value of a country's currency relative to other currencies. Both devaluation and revaluation can be conducted by policymakers, usually motivated by market pressures. The charter of the International Monetary Fund (IMF) directs policymakers to avoid "manipulating exchange gain an unfair competitive advantage over other members."



Market forces generate changes in the value of the currency.

Flexible type of exchange rate regime where currency’s value is allowed to fluctuate according to the forex market. They allow dampening of shocks and foreign business cycles. Managed float: A central bank will intervene to stabilize currency. For instance, it might allow a currency price to float freely between an upper and lower bound, a price "ceiling" and "floor".


Country devaluated because the interaction of market forces and policy decisions has made the currency’s fixed exchange rate untenable. Inability to spend its foreign exchange reserves to purchase all offers of it’s currency at the established rate. Devalue to make
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Exports cheaper for foreigners Imports expensive for domestic consumers

This may help reduce Current Account Deficit.

Policy issues: Instead of unpopular fiscal spending policies, use devaluation to boost aggregate demand in

Increasing price of imports and stimulating greater demand for domestic products can lead to inflation. Psychological: Viewed as sign of economic weakness. Creditworthiness of a country may be jeopardized. Successive rounds of devaluation. Trading partners may become concerned that devaluation might negatively affect their own



The year 2008 has been termed disastrous for the rupee. So far it has lost 23% of it’s value since December 2007. Record low of Rs 81.4 against US$ 1. In April 2008 Dollar was traded at Rs 64. A few months back it was Rs 60.

Exchange rates: Pakistani rupee (PKR) per US$1
RATE  84.00  71.50  63.50  60.50  60.75  58  57.752  59.7238  61.9272  53.6482  51.90  44.550  40.185  35.266  30.930 YEAR/DATE (16/10/08) (26/07/08) (01/04/08) (01/11/07) (05/08/2007) (2004) (2003) (2002) (2001) (2000) (1999) (1998) (1997) (1996) (1995)

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Foreign Currency Reserves falling $800 to $900 per month. Law and Order situation. Flight out capital $70 million a day. Gap between import and export bill. Downgraded credit rating by International Rating Agency Standard & Poors and Moody’s. Inflation rate more than 25%. Widening Current Account Deficit. Heavy Government borrowing to cover budget deficit.


BoP measures the payments that flow between any individual country and all other countries. Determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. Comprises
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Current Account Capital Account Financial Account

BoP and PKR

Pakistan has a huge trade deficit, and our exports are very low. The dollars we get as a result of exports is small compared to the dollars we have to pay for our imports. We need dollars and cannot afford to let go of whatever little we get in the form of our export bills. If the rupee appreciates in value against USD, that will increase our export bill for the buyer, and if that happens, we risk losing that client to a cheaper alternate, like China or India. In order to 'retain' our exports, the state bank manipulates the exchange rate for rupee, to ensure


Some of the items of its exports are oil seed, cotton, rice, wool, fish fresh, chilled frozen, tobacco etc. Main export items are rice and Cotton. Pakistan also faces severe competition in the world market like other developing countries. Even with good harvest after good climate Pakistani goods can fetch good prices only if harvesting in competing nations was bad due to unfavorable weather. Pakistan's exports stood at $17.011 billion in the financial year 2006-2007, up by 3.4 percent from last year's exports of $16.451 billion.

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Main items of import are petroleum and petroleum products, vegetable oil and fats, team wheat, milk and cream etc. Import of petroleum and petroleum products is very vital for the survival of the economy and have been on the rise in the international market. Pakistan's imports stood at $30.54 billion in the financial year 2006-2007, up by 8.22 percent from last year's imports of $28.58 billion.


Pakistan suffered a merchandise trade deficit of $13.528 billion for the financial year 2006-7. In 2002-3 the deficit was only $1.06 billion. The combined deficit in services and goods stand at $17.653 billion which is approx 83.5 percent of country's total export of $21.136 (Goods and services). The rise in the trade gap has been attributed to high oil import bill, and rise in the prices of food items, machinery and automobiles. Current account deficit - Current account deficit for 2006-7 reached $7.016 billion up by 41 percent over previous year's $4.490 billion.

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As of October 11, Pakistan's foreign currency reserves totaled $7.75 billion, having fallen $570 million in a week. Critically, the central bank's share of this has fallen to $4.34 billion, while commercial banks held $3.41 billion. As a result of deteriorating external balances and dwindling reserves the rupee fell almost 2.8 per cent in a day to a record low of 84.40, having lost 27 per cent since the start of 2008. Losing $800 to $900 million per month.


Bomb explosions and Firing on citizens. Gravely affecting social, political, economic and religious fabric of Pakistan. Talented people are leaving the Land of the Pure for good because their fate is in the doldrums. Thus menace of “Brain Drain” is continuously depriving the country of the intellectuals that are the true assets

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Our tourism industry is in the doldrums due to security concerns. In January and February 2008, a large number of people living abroad, including foreigners and Pakistanis, visited Pakistan; however, the number has decreased in March. A large number of people from Pakistan went abroad during March. Affecting areas like
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Local business Foreign investments Sports Entrepreneurship opportunities Development projects Civil life


Only 14 foreign tourists visited the museum in May and June, two busiest tourist months. Tourism has dropped 95%. The Frontier province has lost $40 million in the past five years, almost $8million a year.

Prolonged political uncertainty,  Fragile economic situation,  Deteriorating law and order in the northern part of the country, and  The US threats of direct attacks in tribal areas Have not only shattered the confidence of foreign investors but also forced domestic investors to pull out of the equity markets.
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Local Investors have lost billions of rupees with a single investor having reported 13 million alone.


The World Economic Forum put Pakistan at number 91 out of 125 countries in the global race for competitiveness. 48 ranks behind India (at No. 43) Nine critical factors were highlighted.

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Institutional Infrastructure. Macro-Economy (86th)
Low levels of per capita income High incidence of poverty Unemployment Illiteracy Widening gap of trade accounts


Health and Primary Education (104th)
Almost 3 to 4 per cent of the federal budget is spent on the education sector.

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Market Efficiency (54th)
Free-market mechanism, Positive role of regulatory bodies, Conducive macro-economic policies, Meaningful incentives, Trade liberalization, Financial deregulation, Corporate governance, and Political commitment

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Technological Readiness (89th) Health and primary education (108th): The present government had sanctioned Rs450 million for PSDP in the current budget. Poor Work Ethics Business Sophistication Innovation

Global Financial Crunch  America saw two of its legendary firms bite the dust over the weekend.  Some foreign banks have been asked to cut down their exposure in Pakistan.  The market was short of dollars also because of the State Bank’s buy/swap operations.

SUBPRIME  The subprime virus has truly gone global.  Major banks and other financial institutions around the world have reported losses of approximately US$435 billion as of 17 July 2008.  It shook the strongest of economies forcing countries to intervene to save their economies.

Food Crises.  Our economic crisis is driven primarily by the global economic crisis.  Food crisis blessing in disguise for America.  For us the food crisis should be much less acute.


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