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Global financial crisis & its impact on DSE
Course code:

Submitted to:
Md. Shariful Islam
Department of business administration
Northern University Bangladesh

Submitted by:

Dipock Mondal

Section: A

Submission date:
March30, 2010

Global financial crisis:

The most talked about issue in the recent financial arena is the global financial crisis
which started to show its effect in the middle of the year 2009. The turmoil, however, is
rooted in the sub-prime mortgage crisis that began in mid 2007 when two Bear Stearns
hedge funds collapsed. During boom times, mortgage brokers were tempted by big
commissions, talked with buyers with poor creditworthiness into accepting housing
mortgages with little or no down payment and without credit checks. Banks and financial
institutions often repackaged these debts with other high-risk debts and sold those to
world-wide investors creating financial instruments called CDOs or collateralized debt
obligations. The turmoil started with the collapse of Lehman Brothers which was heavily
dependent on mortgage market and relied on repurchase market for short-term financing.
Shortly after Lehman Brothers, Merrill Lynch filed for bankruptcy which was suffering
from the same disease. The rising defaults on subprime mortgages in the US triggered a
global crisis for the money markets. Consequently, the world stock markets have fallen,
many of the world's leading investment banks and financial institutions have collapsed or
been bought out, and governments in even the wealthiest nations have had to come up
with rescue packages to bail out their financial systems.

Bangladesh is a developing country and globalization integrates us with the global market
in diverse areas. The recent table talks of different formal bodies presumed that
Bangladesh will likely to be equally affected by the global turmoil in the short run as well
as in the long run. It is very difficult to predict the scenario in the long term; however,
short term impacts should duly be taken into consideration.

It is imprudent to consider the economy of Bangladesh as 'vulnerable' as US economy

which is basically 'credit oriented' rather than 'savings oriented' that ultimately results in
enhancement of debt burden on individuals and the country as a whole. As a
consequence, the economy is poised towards vulnerability. The above is eventually the
outcome of the deregulations of the so-called regulated countries. However, in the case of
Bangladesh, it is unlikely to experience such debacle as our regulatory bodies including
Bangladesh Bank (BB) regulates and supervises the financial market strictly. The overall
financial leverage in Bangladesh is low and unlike the global financial institutions,
Bangladesh's banking system has no toxic derivative engagements that could make
overnight default of the financial sector. Even we don't have severe liquidity problem that
could lead to a credit squeeze. Moreover, prudential regulations and monitoring by BB
has kept the lending-deposit ratio of private banks within a tolerable limit.

Financial crisis impact on Dhaka Stock Exchange:

A sluggish trend has been observed in the capital market for the period between July
2008 & February 2009. However, in view of the insignificant role played by foreign
capital( accounting for about 2.5% of market capitalisation) in the capital market of
Bangladesh , it was mainly the domestic factors rather than the negative affects of global
shock that contributed directly to this trend. Movement of .

The year 2009 was a challenging period for the government and the entrepreneurs to
shield the country’s economy from the impact of global economic recession.

From January 1 to December 27 of 2009, the benchmark index of Dhaka Stock Exchange
(DSE) went up by 1,668 points, or 59 percent. Grameenphone, which alone added some
700 points in the indices, backed the jump.

The two bourses of our capital market continue to register their sharp decline for the last
couple of months of 2009. The prime bourse of the country Dhaka Stock Exchange
(DSE) ended with 2228.21 points in 'DSE Index' and 2684.68 points in 'General Index' as
of November 2, 2008.

The trade volume also dwindled and stood at TK. 2490.51 million as on the same day. On
the other hand, the 'CSE Selective Categories Index' went down to stand at 5334.05
points while 'CSE All Share Price Index' to 8233.62 points. However, there is no direct
relationship between the global financial crisis and our capital market as we all know the
foreign investment contribute less than 2.0 per cent of the total equity investment. The
situation is driven by the panic behavior of the market participants which is partially
alleged to be transmitted by some top merchant banks in the form of heavy selling.
Consequently, individual investors are withdrawing their money from the capital market
and bear losses to protect the expected more losses in future. Many of the institutional
investors are capitalizing on the same by taking possession of the lower priced securities.
Instead of being frightened, investors should keep patience in the context of present
market scenario.

Considering all pros and cons, Bangladesh is expected to retain its competitive position in
the global market in days to come. However, it will be dependent on sensible and timely
policy decision which will mostly lie on the government. If we can avail ourselves of the
opportunities and prudently confront the challenges, the global financial crisis will not be
a bane for us rather may turn into a boon.