Body of Report

Chapter 1 Introduction
Problem Statement:
''Foreign Exchange dealing is a technical job and has a great prospect in our country. Floating
Exchange Rate has been introduced very recently and it has put the banking sector into a new
era. Bangladesh Bank's total control is not there but there is some risk factor involved in it.
Mercantile Bank Ltd. wanted to find whether the process of their foreign exchange operation is
good enough to avoid any unwanted risk and the prospect in foreign exchange dealing in their
present standing,
Objective:
The basic objective of the report is to see whether the process of Foreign Exchange Operation in
Mercantile Bank Ltd. is complying with the guideline issued by Bangladesh Bank and how
Mercantile Bank Ltd. is handling the Foreign Exchange trading.
Broad Objective:
The broad objectives of the report are-
 To find whether the process of Foreign Exchange Operation is complying with the
guideline issued by Bangladesh Bank
 To find whether the process is good enough to avoid the foreign exchange risk and how it
is working.
 To find the prospect of Mercantile Bank Ltd. in foreign exchange dealing.
Specific Objectives:
The Specific objectives are -

 To analyze the overall situation of the foreign Exchange Market prevailing in Bangladesh
before and after the exchange rate was declared floating.
 To acquire a general idea about the various divisions of a private bank and their functions
and operations, in this case Mercantile Bank Ltd.
 To observe and analyze the foreign exchange operation from dealing room to back office.
 To observe whether the foreign exchange operation is complying with the guideline
issued by Bangladesh Bank
 To find the standing of Mercantile Bank in Foreign Exchange Dealing.
Sources of data:
In this report both Primary and Secondary sources of data have been used. For both the
Organization part and Project part, quantitative information from the Annual reports of MBL and
qualitative information from other literature regarding the various divisions and their functions,
operations were used. So, basically secondary data were utilized. For the project part, primary
data were collected by holding informal interviews with the employees to learn about their
response/reaction to the change that is occurring in the organization.
Scope of the study:
This report covers the organizational structure, background, basic functions of the various
divisions and the performance of the bank. In case of the project part, the study area and
observations are limited to Treasury division only.
Methodology:
The methodology of the report is given below,
 For the procedure of different banking operations, I had observed the operations and
worked with the Officers at the same time. I had informally interviewed the MBL
Officials for getting more information.
 For the analysis part, data have been collected from different statements and the annual
reports of the bank.
Limitations of the Study:
The following limitations are apparent in the report—
 For the Organizational part, almost no financial information for the year 2005 were
available, in some cases only un-audited information could be collected.
 As the floating exchange rate is introduced very recently the data of its impact was not
that much available.
 The information regarding the dealing profit & loss were not disclosed officially and
that's why it was not possible to judge the performance of the dealing process of
Mercantile Bank Ltd. with the help of material yardstick like profit.
Chapter -2 Organizational Profile
2.1 Mercantile bank at a glance
Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking
service and to contribute socio-economic development of the country. The bank commenced it’s
operation on June 2, 1999. The Bank provides a broad range of financial services to its customers
and corporate clients. The board of directors consists of eminent personalities from the realm of
commerce and industries of the country. The renowned 30 industrialists established this Bank.
Mercantile Bank Limited is a private commercial bank with Head Office at 61, Dilkusha C/A,
Dhaka, Bangladesh, with a total of 55 branches all over Bangladesh, including it’s three SME/
Krishi branches. From its inception Mercantile Bank had introduced an wide range of banking
services for the people of all classes. It has introduced the retail banking, online banking and
also the SMS Banking to reach the banking services at every door steps. The bank mobilized
deposits of BDT 58.30 billion and the loans and advances of BDT 48.30 billion at the end of
2009. To contribute in the capital market of the country the bank has launched the operation of
mercantile bank brokerage house ltd. The bank has achieved “certificate of merit” from the
ICAB. MBL has also bee awarded as “Sonar Manush Sheba Award” by the Refugee and
migratory movement’s research unit (RMMRU).
2.2 Vision statement of Mercantile Bank Limited
Would make finest corporate citizen
2.3 Mission statement of Mercantile Bank Limited
Will become most caring, focused for equitable growth based on diversified deployment of
resources, and nevertheless would remain healthy and gainfully profitable Bank.
2.4 Objectives of Mercantile Bank Limited
Strategic objectives:
 To achieve positive Economic Value Added (EVA) each year.

 To be market leader in product innovation.
 To be one of the top three Financial Institutions in Bangladesh in terms of cost efficiency.
 To be one of the top five Financial Institutions in Bangladesh in terms of market share in
all significant market segments we serve.
Financial objectives:
 To achieve 20% return on shareholders' equity or more, on average.
2.5 Core values of Mercantile Bank Limited
For the customers:

Providing with caring services by being innovative in the development of new banking products
and services.
For the shareholders:

maximizing wealth of the Bank.
For the employees:

respecting worth and dignity of individual employees devoting their energies for the progress of
the Bank.
For the community:

strengthening the corporate values and taking environment and social risks and reward into
account.
New technology:
Adopting the state-of-the art technology in banking operations.
2.6 The corporate Structure of Mercantile Bank Limited
Board of directors:
The board of directors consists of 13 member elected from the sponsors of the bank. The board
of directors is the apex body of the bank.
Board committee:
The board of directors who also decides on the composition of each committee determines the
responsibilities of each committee.
Executive committee:
All routine matter beyond delegated powers of management are decided upon by or routed
through the executive committee, subject to ratification by the board of directors.
Policy committee:
All mater relating to the principles, policies, rules, and regulation, ethics etc. for operation and
management of the bank are recommended by the Committee to the board of directors.
Management:
The management of the bank is vastly on a board of directors, for overall supervision and
directions on policy matters by the board. The power of general supervision and control of the
affairs of the bank is exercise by the president and managing director of the bank who is the chief
executive officer. Above all, the bank will be manned and managed by a galaxy of talented
professionals proficient in their individual fields and dedicated to the cause of the bank.
Management hierarchy of Mercantile Bank Limited is given bellow:
Chapter 03 Commencement
On March 24, 1994 the Bangladesh Taka was declared convertible for current account
transactions in terms of Article VHI of the IMF Articles of Agreement and the band of the
central bank's US Dollar buying selling rate were withdrawn. The declaration symbolized a
turning point in the country's exchange management and exchange rate systems. The period
preceding this declaration saw an intensification of reforms undertaken by Bangladesh Bank to
ease controls on foreign payments and exchange rate arrangements.
The Bangladesh Taka, which is the domestic currency of Bangladesh and the country's foreign
exchange, had been strictly regulated until the early 1990s. At that time, Bangladesh Bank used
to regulate the local currency's parity against the international currencies. The cross border
movement of currencies was also regulated. Bangladesh Bank used to publish a daily foreign
exchange rate sheet that had two sets of rates; one being the rates for commercial banks to
transact with their customers and the other being rates for the commercial banks to transact with
Bangladesh Bank.
The year of 1994 saw a significant shift in the country's foreign exchange regulatory policies and
the Bangladesh Taka (BDT) was declared convertible in the current account. Most restrictions
related to current account activities were relaxed where commercial banks were given the
responsibility to ascertain genuineness of the transactions and the central bank's prior approval
requirements in these regards were withdrawn. The responsibility of exchange rate quotation
was left to the commercial banks where Bangladesh Bank only committed support to the
commercial banks to plug any net foreign currency gaps in the market at their pre-specified
buying and selling rates.
Now Bangladesh Bank is given the freedom to the commercial market to decide their exchange
rate. As the Foreign Exchange Rate is now floating total market has changed. To adapt to the
changed environment, many banks established dealing rooms and some centralized their foreign
exchange and money market activities under a single functional area which is still in its
rudimentary stage. This report's purpose is to see how well prepared Mercantile Bank Limited is
to adapt to this changed situation.
Foreign Exchange Market:
The foreign exchange market has played a vital role in the last decade or so in guiding the
purchase and sale of goods, services and raw materials globally. The market directly affects
each country's bond, equities, private property, manufacturing and all assets that are available to
foreign investors.
The market is a stabilizing factor in the world system of monetary exchange and was created not
by design but necessity. There is in excess of one trillion dollars of average daily turnover in the
global foreign exchange market. Fifty one percent is in spot transactions followed by thirty two
percent in currency swaps and forward outright transaction represents another five percent of the
daily turnover.
Foreign exchange rates play a major role in the protection of balance of payments. When the
balance of payments deficit of any country is sufficiently wide and chronic, a rationing of foreign
exchange among various competing demands is one of the measures to correct the imbalances.
Flight of the capital from the country can be curbed by foreign exchange control. Foreign
exchange rates can also be used to protect home industry. If certain industries are facing stiff
competition from similar industries abroad, the government may desire to protect the home
industry. Imports of the commodities produced by foreign industries may be restricted so that the
local industries are allowed to grow. This paves the way for better utilization of the country and
also conserves its foreign exchange reserves.
Foreign exchange rates also play a major role in determining who finances government deficits,
which buys equities in companies and literally effects and influences the economic scenario of
every nation to cope with the foreign exchange risk in an open market economy. The market has
its own momentum and therefore it is crucial to follow a universal time tested policy to tackle the
forces behind the free market system with minimal risk involvement
Foreign Exchange Risk:
With the demise of the foreign currency exchange rates during the 1970's and after the collapse
of the Bretton Woods Agreement, the world economy has undergone drastic changes. This has
signaled an increase in currency market volatility and trading opportunity.
In simple words, the risk of suffering losses because of changes in exchange rates are known as
Foreign Exchange Risk. More precisely, the risk that a long or short position in a foreign
currency might have to be closed out at a loss due to an adverse movement in exchange rates is
known as Foreign Exchange Risk.
Another type of definition says-
The risk that the amount of a commitment in a foreign exchange currency will vary between the
time the commitment was entered into and the date at which the commitment is to be settled or
brought to account in the local currency is the foreign exchange risk.
The foreign exchange market has witnessed frequent bouts of excessive volatility. At times it has
seemed too many businesses that they have been helpless in the fight to control the associated
risks which arise when exporting or importing goods and services. Future cash flow projections,
profitability, competitiveness and the ability to service debt can all be impacted by foreign
exchange volatility when paying or receiving foreign currency.
Exchange rates movements generate business risks of many types, often complex and sometimes
hidden.
All businesses trading overseas and increasingly in domestic markets will have some exposure to
exchange rate movements either directly or indirectly. Whilst exposure to
exchange rate movements may be an inevitable part of everyday activity, the risk arising from
such exposure can be controlled.
Risk Involved in Foreign Exchange Operation:
All financial activities involve a certain degree of risk and particularly, the financial institutions
of the modern era are engaged in various complex financial activities requiring them to put
proper attention to every detail.
The success of the trading business depends on the ability to manage effectively the various risks
encountered in the trading environment, and the organization's policies and processes require
development over time to ensure that this is done in a controlled way. The key risk areas of a
financial institution can be broadly categorized into:
- Credit risk
- Market risk and
- Operational risk
In view of the significance of the market risk and in order to aggregate all such risks at a single
department and to bring expertise in such functions, the concept of TREASURY has evolved.
Today's financial institutions engage in activities starting from import, export and remittance to
complex derivatives involving basic foreign exchange and money market to complex structured
products. All these require high degree of expertise that is difficult to achieve in the transaction
originating departments and as such the expertise is housed in a separate department i.e.
treasury.
The main risks treasuries have to manage in the financial markets are credit risk i.e. the
settlement of transactions and market risk, which includes liquidity risk and price risk.
Some of the risks that are to be monitored and managed by a treasury can be defined as follows:
Credit risk:
Credit Risk arises from an obligor's failure to perform as agreed.
Interest rate risk - Arises from movements in interest rates in the market The interest rate
exposure is created from the mismatches in the interest re-pricing tenors of assets and liabilities
of an organization. This risk is generally measured through Earnings at Risk Measures (EAR) i.e.
the potential earning impact on the balance sheet due to interest rate shifts in the market (detailed
in annexure - I).
Liquidity risk - Arises from an organization's inability to meet its obligations when due.
The liquidity exposure is created by the maturity mismatches of the assets and liabilities of the
organization. This risk is measured through tenor wise cumulative gaps.
Price risk - Arises from changes in the value of trading positions in the interest rate, foreign
exchange, equity and commodities markets. This arises due to changes in the various market
rates and/ or market factors.
Compliance risk - Arises from violations of or non-conformance with laws, rules, regulations,
prescribed practices, or ethical standards.
Strategic risk - Arises from adverse business decisions or improper implementation of them.
Reputation risk or franchise risk - Arises from negative public opinion.
Market Risk:
Market risk is defined as the potential change in the current economic value of a position (i.e., its
market value) due to changes in the associated underlying market risk factors. Trading positions
are subject to mark-to-market accounting, i.e., positions are revalued based on current market
values and, for on-balance sheet positions, reflected as such on the balance sheet; the impact of
realized and unrealized gains and losses is included in the income statement.
Market Factors: A market factor is defined as a variable (i.e., a market price or rate, such as a
spot FX rate or an interest rate) that can impact the economic valuation of a contractual position.
All relevant market factors must be identified and taken into consideration in the establishment
of the independent market risk limit frameworks. They also must be specified at a sufficient level
of detail so that distinct types of market risks to which a risk-taking unit is exposed are
separately identified.
It is a part of the market risk management activity to identify and specify all relevant market
factors for each risk-taking unit and to take them into consideration in the establishment of the
independent market risk limit frameworks.
It is the responsibility of the trading units to notify the market risk management of any new
activities that may give rise to market factors not previously identified or defined.
Operational Risk:
Operational Risk arises from the day to day operations.The foreign exchange market directly
affects each country's bond, equities, private property, manufacturing and all assets that are
available to foreign investors. Foreign exchange risk is the risk that the amount of a commitment
in a foreign exchange currency will vary between the time the commitment was entered into and
the date at which the commitment is to be settled or brought to account in the local currency.
The success of the trading business depends on the ability to manage effectively the various risks
encountered in the trading environment, and the organization's policies and processes require
development over time to ensure that this is done in a controlled way. The key risk areas of a
financial institution can be broadly categorized into: Credit risk, Market risk and Operational
risk. In view of the significance of the market risk and in order to aggregate all such risks at a
single department and to bring expertise in such functions, the concept of Treasury has evolved.
In the following Chapter we will about the Bangladesh scenario and factors affecting the foreign
exchange market in Bangladesh.
Chapter 4 Foreign Exchange Scenario of Bangladesh
Foreign Exchange Rate:
The need for foreign exchange is high in Bangladesh. 'Cause we had to import a lot more than
we export. Other than export, the remittance by non-resident Bangladeshi's and foreign aid is
another source of foreign currency. In previous years we have seen frequent bouts of devaluation
of our currency i.e. taka. This is mainly done to keep our exporters in business, although there
are other reasons also. This is the past.
Previously, the foreign exchange rate used to be fixed by Bangladesh Bank - the central bank of
Bangladesh. They used to give the Tk/US$ rate. It was usually done on the basis of Purchasing
Power Parity Theory and keeping the Balance of Payment in mind. And as a matter of feet we
have seen that Tk value has gone down from 1 US$ - 35.68 Tk in 1990-91 To 1US$ = 68.30Tk
in 2004-05 Before the exchange rate was declared floating. Tk was highly devalued before
exchange rate was floating. The following table will show that. In 2000-01 Tk was devalued by
10.53Tk. In the floating exchange period the Tk maintained its price quite well. We will see that
in another table. In the following table exchange rate of Taka against US$ and its devaluation are
given.
Table 2: Exchange Rate and Devaluation before and after Floating
PERIOD Tk/USS Devaluation PERIOD Tk/US$ Devaluation
1990-91 35.68 -2.49 1998-99 48.06 -4.54
1991-92 38.15 -8.23 1 999-00 50.31 -4.90
1992-93 39.14 -2.01 2000-01 53.96 -10.53
1993-94 40.00 -1.12 2001-02 57.43 -1.55
1994-95 40.20 0.37 2002-03 57.90 0.00
1995-96 40.84 -3.95 2003-04 68.39 -19.45
1996-97 42.60 -4.35 2004-05 68.39 -19.45

1997-98 45.46 -5.72
Source: www.bangladeshbank.org.
Now as the exchange rate has been declared floating, central bank has taken away its full control
from the market. The market is now allowed to decide the exchange rate. The market force i.e.
the demand and supply will now decide the price. The demand and supply of foreign currency, in
our case mostly the demand and supply of US$ will fix the exchange rate. In this system exchange
rate cannot be fixed to give benefit to some quarters. Before Bangladesh Bank would give a band
in which the transaction has to be completed and that most of the time was fixed to help the
exporters. But that was a bit injustice to the importers. Though it is argued that if export increases
it will boost the economy but in real case it is not as the devaluation means that one has to pay more
for the imported goods but consume same as before. Now as the rate is floating then only the demand
and supply will determine the rate as such the price of foreign exchange.
On March 24, 1994. the Bangladesh Taka exchange rate was declared floating and the band of the
central bank's US Dollar buying selling rate were withdrawn. In the floating regime the foreign
exchange rate was pretty stable in the second part of the year 2003 and the first part of 2004. But now
i.e. from the ending days of December, 05 the price shoot up a little.
PERIOD Tk/USS PERIOD Tk/USS
1990-91 35.68 May'04 59.63
1991-92 38.15 June'04 60.07
1992-93 39.14 July,04 59.72
1993-94 40.00 August,04 59.39
1994-95 40.20 September,04 59.46
1995-96 40.84 October’ 04 59.60
1997-98 45.46 November’ 04 59.70
1998-99 48.06 December’ 04 59.85
1999-00 50.31 January, 05 60.02
2000-01 53.96 February’05 60.95

2001-02 57.43 March’ 05 61.50
2002-03 57.90 April’ 05 62.75
July’ 03 58.40 May’ 05 63.40
August'03 58.42 June’ 05 64.65
September'03 58.43 July’ 05 65.20
October'03 58.42 August’ 05 65.60
November'03 58.45 September’ 05 66.10
December'03 58.55 October’ 05 66.95
January'04 58.91 November’ 05 67.50
March'04 59.01 December’ 05 68.30
April'04 59.04 January’ 06 68.90
Source: www.bangladesh-bank.org.
The above table will show the exchange rate*fluctuations in controlled 'regime, when Bangladesh
Bank was giving the band in which the exchange would take place and in floating rate regime,
when the market force is deciding the exchange rate. We will see that Tk was highly devalued in
between 1995 and 2000.
We have already seen the high degree of devaluation during the controlled period of Bangladesh
Bank. But the devaluation was not as high after the exchange rate was declared floating. It can be
observed from the data of following table which shows devaluation in different months after
exchange rate was declared floating.
Table 4: Devaluation in Floating Rate Regime
Period Devalued Period Devalued

Amount Amount
2003-04 2003-04
July’ 03 -0.99 December’ 03 -0.81
August; 03 0.11 January’ 04 0.10
September’ 03 -0.01 February’ 04 -0.12
October’ 03 -0.03 March’ 04 -0.08
November; 03 -0.01 April’ 04 -0.40
Source: www.bangladesh-bank.org.
In the following diagram we will show the comparison of devaluation in two systems, which will
show the degree of devaluation during the period of central bank’s control and during the
floating rate period.
0.2
-0.2
-0.4
-0.6
-0.8
-1
Source: www.mblbd.org
Fig 1: Comparison of Devaluation in Two Exchange Rate Regime
Before exchange rate was declared floating Tk. value went down from 1 US$ = 40.20 Tk in
1994-95 to 1 US$ = 57. 43 Tk. in 2001-02. And when the rate was declared flatting it became
much steadier.
Comparison of Exchange Rate Before and After Floating
1990-91
70 1991-92
1992-93
1993-94
1994-95
1995-96
1997-98
60 1998-99
1999-00
2000-01
2001-02
2002-03
50 July’ 03
August'03
Septemb er'03
Octob er'03
Novemb er'03
40 Decemb er'03
January'04
March'04
April'04
May'04
June'04
30 July,04
August,04
Septemb er,04
Octob er’ 04
Novemb er’ 04
20 Decemb er’ 04
January, 05
Feb ruary’05
March’ 05
April’ 05
May’ 05
10
June’ 05
July’ 05
August’ 05
Septemb er’ 05
0
Octob er’ 05
Novemb er’ 05
Decemb er’ 05
January’ 06
Fig 2 : Comparison of Exchange Rate Before and After Floating

Now, a much closer look to the Foreign Exchange Market of Bangladesh after the period of
March 24, 2005 when the exchange rate was declared floating. The following graph will show
the month wise change of exchange rate against US$.
Monthwise Change in FX Rate
60
59.5
Tk/US$
59
58.5
58
57.5
03 '0
3
r'0
3 3
r'0
3 3
y'0
4 04 4 04
ly
’ st e e r'0 e er'0 r c h' r i l'0 ay'
u b a
Ju g m ob m
b
m
b
nu ar Ap M
Au p te O
ct ve ce Ja M
o e
Se N D
Month's after Floating Rate

Source: www.usblbd. org
Fig: Month wise Change in Foreign Exchange Rate
It is pretty obvious from the above figure that, in the initial month the market was pretty stable
and the exchange rate was pretty much around 1 US$ = 58.50 T. It devalued slightly in January’
04 and the market became a bit volatile when the Tk. value went down pretty sharply in May’
04. It is carrying its tend in the early part of June’04 also. Now we will take a look at another
figure which will show the day wise exchange rate and depict how volatile the market was in
recent days.
Date Taka/Us dollar Date Taka/Us dollar Date Taka/Us

rate (weighted rate (weighted dollar rate
average) average) (weighted
average)
December 60. 1377 December 60.1726 December 59.9423

11, 2004 06, 2004 01, 2004
December 59.9096 December 60.4105 Novembe 59.8596

09, 2004 05, 2004 r 30, 2004

08, 2004 04, 2004 r 29, 2004
07, 2004 02, 2004 r 28, 2004
The market was volatile in these days. If we want to go behind the scene of why market suddenly
became too volatile we have to take a look at certain macro-ecnomic issues.
EX Volatality in Recent Days

60.5
60.4
TK/US$
60.3
60.2
60.1
60
59.9
59.8
27 29 1- 3- 5- 7- 9- 11
-N -N De De De De De -D
ov ov c- c- c- c- c- ec
-0 -0 0 4 0 4 0 4 0 4 0 4 -0
4 4 4
Days
Source: www.bdlbd.or
Fig 4 : Day wise change in Foreign Exchange Rate
The Market was volatile in these days. If we want to go behind the scene of why market
suddenly became too volatile we have to take a look at certain macroeconomic issues.
Import:
IF import is more than export then a lot of foreign exchange goes out from our country. We are
losing more foreign currency then we are getting. Import payments in July 2004 stood higher at
US$76.60 million compared to US$ 820.60 million in July 2004. Of the total import payment
during the month imports under cash and for EPZ stood at 890.00 million, under loans/ grants
US$ 72.00 million, import under director investment US$5.60 million and short term loan by
BPC US$9.00 million. Detailed information are shown in the following table.
Table 5: Import payments and import LCs opened
Import payments (c. &. f.) Import LCs opened
2003-2004p 2002-2003R 2003-2004 2002-2003
10866.70 9657.60 12397.75 10208.78
(+ 12.52) (+ 13.09) (21.44) (+19.15)
Import Payments Import LCs opened
Month 2004-2005p 2003-2004p 2004-2005p 2003-2004R
July 976.60 820.60 1065.99 898.27
(+ 19.01) (14.87) (+18.67) (39.85)
August. N.A. 734.80 1063.94 863.23
July-Aug. N.A 1555.40 2129.93 1761.50
(+25.62) (20.92) (31.44)
Fresh opening of import LCs during July-August, 2004 increased by US$ 368.43 million or
20.92 percent to US$ 2129.93 million compared to US$1761.50 million during the same period
of the preceding year.
Growth of import L/Cs opening (year-on-year)

July’ 03
10
August'03
20 September'03
30 100 October'03
November'03
40
December'03
January'04
50
March'04
90
April'04
May'04
60
June'04
July,04
70 80
August,04
Fig. 5: Growth of Import
Fresh opening of import LC in august 2004, increased by US$ 200.71 million or 23.25 percent to
US$106394 million compared to US$ 863.23 million in the same month of the previous year.
This year however US$ 2.05 million or 0.19 percent lower than US$ 1065.99 in July 2004.
Export:
According to EPB merchandise export during July-August, 2004 stood higher by US$ 346.76
million or 26.37 percent to US$ 1661.84 million compared to US$ 1315.08 million during the
same period of the preceding year.
Annual and Monthly Trends in Export
Annual Report 2001-2002 2002-2003 2003-2004
$5986.09 $6548.44 $ 7602.99
(-7.44) (+9.39) (+16.10)
Monthly Export Month 2004-2005p 2003-2004
July 868.13 687.17
August 793.71 639.91
July-August 1661.84 1315.08
(+26.37) (+7.72)
Source: www.mblbd.org.
Table 6: Annual and Monthly Trends in export

In the recent month the growth rate of export remains steady. It is in the band of 15% to 17%
from Mid-March to August. This kind of stability comes from the failure in the readymade
garments industry to manage new market.
Source: www.mblsd.org
Fig 6 : Month wise Export Growth
From the above chart it is clear that in the recent period the country manages the drastic fall of
export during February, 2004. But even now it is well below the target.
Remittance:
Then there is also the impact of foreign exchange remittances from Bangladeshi nationals
working abroad. Remittances in September 2004, stood higher at US$ 278.13 million compared
to US$ 71.68 million in August 2004 and US$ 248.30 in the same months of the last year.
Annual and Monthly Trend in Remittances
(In Million US$)
A. Annual 2001-2002 2002-2003 2003-2004
remittances 2501.13 3061.97 3371.97
(32.89) (+22.42) (+10.12)
B. Monthly Month 2004-05p 2003-2004

remittances
July 286.67 258.80
August 271.68R 227.68
September 278.13 248.30
July- 863.48 734.78

September
(+13.84) (0.88)
Source: www.mslbd.org
Table 7: Annual And Monthly Trend in Remittances
Total remittances during July-September, 2004 stood higher by US$ 101.70 million or 13.84% to
US$836.48 million compared to US$ 734.78 million during the same period of the preceding
year.
Foreign Exchange Reserve:
Gross foreign exchange reserve of the BB stood marginally lower at US$3074.97 million at the
end of September, 2004 compared to US$3132.28 million at the end of August, 2004 due to
ACU payment of US$ 258.29 million as on 9 September, 2004.
Gross Foreign Exchange Reserve of Bangladesh Bank
A. Outstanding Year ended

stock at the end of
June, 2002 June, 2003 June, 2004p
the year
1582.9 2469.57 2705.02
(+21.13) (+56.02) (+9.53)
Month/ Year 2004-2005 2003-2004

B. Outstanding July 2563.03 2361.32
stock at the end of
August 3132.28 2547.93
the month
September 3074.97 2497.63
(+23.12) (+44.02)
Source: www.bangladeshbank.org
Table 8: Gross foreign exchange Reserve of Bangladesh Bank.
This was, however, significantly higher than US$ 2497.63 million at the end of September,2003.
For the year of 2004 foreign exchange reserve was highest on August. In July this reserve was
lowest due to the import payment of petroleum. Foreign exchange reserve of Bangladesh bank
and other bank is given below.
September'03
1000 500 October'03
1500 3500
November'03
December'03
2000 January'04
3000
2500 March'04
April'04
Source: www.bangladesh bank.org.
Fig 8: Foreign Exchange Reserve (Month Wise)
Gross foreign exchange balances held abroad by commercial banks stood lower at US$297.25
million at the end of September, 2004 compared to US$319.84 million at the end of August, 2004 and
US$376.25 million at the end of September, 2003. The thing needs to be remembered that this
export or import procedures are having an impact in the foreign exchange market as the payments
usually comes or goes a few months later then the actual export or import. As an after affect of
devaluation growth in export will be observed - as it will allow the exporter more margins. The other
that needs to be said that Bangladesh being a developing country and growing stage it needs some
degree of devaluation to keep up its export. There is also the fact that we are in a region where India,
China and Myanmar is the neighboring country - all these country are growing and has a huge
population and export potential And to keep competing with them m international market we need
a slightly weaker currency. This is what we have seen during the floating exchange rate regime.
These are the reasons of volatility in the foreign exchange market from macroeconomic
perspective.The main thing that with this volatile market and most of the banks dealers not being
accustomed with the floating exchange market did some mistake and that's why has incurred a lot
of loss through dealing. Even the largest bank in Bangladesh - Sonali Bank incurred about 81 Crore
of loss. Not being expert enough in dealing they tried to the Cross-currency trading to profit but
in effect they were not in any position to do that That is the reason of the banks incurring losses.
Then Bangladesh Bank took some initiative to stop this loss. It issued a lot of guidelines and
regulations to stop the bank from incurring that much loss and to stop the foreign currency going
out of the country.
Chapter 5 Dealing & Risk Management
Overview:
March 24, 2004, the Bangladesh Taka exchange rate was declared floating and the band of the
central bank's US Dollar buying selling rate were withdrawn. To adapt to the changed
environment, many banks established dealing rooms and some centralized their foreign
exchange and money market activities under a single functional area which is still in its
rudimentary stage. But it needs to be said that Mercantile Bank Limited showed its maturity in
dealing with the matters of exchange rate and that's why they haven't incurred any loss through
dealing. Whereas big names like Sonali Bank, AB Bank etc incurred a lot of loss.
Observations in Brief:
The following observations are made :
 MBL has a well equipped dealing room with Internet, Fax, Phone and all other necessary
thing. It is access restricted area only the dealers and other related personnel enter into
the room.
 Bangladesh Bank has advised the bank do tap the conversation of dealing - as it will
prevent any mistake of rates, amount etc and it may provide hard evidence if necessary.
But the conversations during dealing are not tapped. So the bank needs to take this matter
into consideration.
 Most of the time the deals are recorded immediately after they are completed. They are
recorded both in the position blotter and deal slip.
 All deals done by dealers are required to be processed by the treasury back-office for
which they need to be informed of the details of the deals within a certain time. In this
process dealers verbally inform to the treasury back-office within shortest possible time.
Here the prescribed Time Stamp is not used. In Most of the time the timeline guided by
Bangladesh Bank is not followed Bank has set counter party limit as asked by the
Bangladesh Bank. This limit has set in the meeting of ALCO.
 A stop loss limit for a product is generally a certain percentage of the organization's prior
year profit from that product. For mercantile Bank the limit is fifty percent, which is
subject to rapid change.
 Dealing room prepares the rate sheet. The current information is collected from the
Reuter. Mercantile Bank is a subscriber of Reuter. In the Renter's website they get the
information of current rates of different currency in different banks of the world. With this
context the rate committee matches the demand supply situation of the bank. Shortly this
is the process of rate determination in MBL.
 Judging of Rate Appropriateness is extensively done by the back office. Dealing Room
prepares the rate sheet but they can only implement it after it is checked and passed by
the back office. Even when any dealing is done back office sees whether the price is
appropriate or not. And before giving any special price to any specific dealers' proper
permission is taken from authorized person.
 In Mercantile Bank trigger is set at 90 percent of Stop Loss limit. In case of profit trigger the
limit is decided on the market situation.
 Appropriateness of dealing is judged by both the back and mid office. Front office of
dealing room conducts the dealing. Mid-office checks whether
the deal is within the limit (daily dealing limit, counter party limit and stop loss order
limit).Back office of dealing room usually makes the settlement.
 Dealing room of mercantile bank Ltd. has specific limit for different currency. For example
Two million is the daily limit for US dollar. This limit is judged by ALCO.
 Dealing room tries to maintain a null outstanding limit everyday to avoid the risk of loss. If
the outstanding limit stands in the profit side then the related dealer is advised to make a
watch order to a counter party. The policy is to maintain a square position.
 Treasury back office values all outstanding positions at the current rate to determine the
current market values of these. In MBL the treasury back office gathers the market rates
from independent source i.e. than dealers of the same
organization, especially over telephone or internet.
 After hours dealing is that which the dealers own trading room is closed. In our market
the business hour is still 5 PM, any deals done by dealers after that time is considered as
after hour's deals. MBL does not trade after the banking hours.
 A dealing transaction done by a dealer who is not physically located in the dealing
premises, irrespective of the time of day is an off-premises deal. Of premises dealing is
not practiced in Mercantile Bank Ltd.
Now we will describe the observation made in Mercantile Bank Ltd elaborately with critical
evaluation of the matter.
Observations and Evaluation
Dealing Room:
Since the dealers have access to global live prices of various products through their various
communication tools, their desks are access restricted. As a result, dealers are housed inside a
covered room known as the "dealing room" where the access is generally restricted only to the
dealers and the related personnel. In Mercantile Bank Ltd. there is a separate unit in the sixth
floor of the office is used as the dealing room where entry is restricted for other than related
personnel. The dealing room is distinctively separated from the back office so that the dealer can
do his job independently, without unnecessary intervention of back office.
Taped Conversations:
In MBL, the dealers conclude deals over the phone. This is because deals are done on the local
market where dealers are mostly known to each other and they feel comfortable dealing by
talking to other dealers over phone. In MBL the conversion with the dealers of other
organization is not taped. So such deals over the phone do not have any hard evidence and in a
fast dealing environment, there is risk of mistakes (of rates, amounts or value dates etc.). Ail
telephonic conversations taking place in the dealing room are required to be taped. Taped
conversations can assist in resolution of any disputes that may arise. Dealing over the mobile
phones is restricted in MBL.
Deal Recording:
The job nature of a dealer is highly demanding and the environment of a dealing room is very
active. In such an environment when a dealer continues to deal, his/ her focus remains on the
market. As such there is a risk of a dealer completely forgetting about a deal or part of a deal or
making mistake in recording that deal.
To eliminate this risk, in Mercantile bank Ltd. every dealer must record the deal immediately
after it is concluded with the counterparty. The deal recording is done in two ways:
Position Blotter: Immediately after a deal is done, the dealer records the deal on the position
blotter and updates his position. It is of utmost importance to a dealer to remain aware of his/ her
position at all times. This is required to capture any immediate opportunity or to be in a position
to immediately react to any adverse situation. A sample blotter has been shown on annexure.
Deal Slip: Record is also done on a slip or memo which is known as the deal slip or deal ticket. In
MBL, the deal slips are electronic and are through inputs into their automated systems. Deal slip
contains details such as, payment instruction, value date, currencies, amounts, deal rate etc. The
deal slip is passed on to the treasury back-office at the earliest for their further processing of the
deal. Ideally, all deal slips are pre-numbered for control reasons and the treasury back-office
monitor for any breakage in sequence. Where pre-numbered deal slips are in place, any cancelled
deal slips must also be forwarded to treasury back-office for appropriate record keeping/ filling.
Deal Delay:
All deals done by dealers are processed by the treasury back-office for which they need to be
informed of the details of the deals within a certain time. In this process dealers occasionally
raise deal tickets that need to be sent across to the treasury back-office within shortest possible
time. This is not the right way to minimize he risk associated with deal delay. The timeliness of
raising deal slips/ inputting into the automated system as well as passing them on to the back-
office is not only sound business practice but also critical for monitoring of credit risk, price risk
and regulatory compliance.
The following table provides guidelines of deal capture standards:
Product Deal-slip rising/System Input Deal-slip to reach

Time back-office
Spot FX Within 10 minutes Within 25 minutes
Forward FX Within 10 minutes Within 25 minutes
FX Swaps Within 15 minutes Within 30 Minutes
Call/ Notice Money Within 10 minutes Within 25 minutes
Money Market Term Within 10 minutes Within 25 minutes
Foreign Currency Deposits Within 10 minutes Within 25 minutes
Treasury Bills Purchase By 10:30 a.m. on payment day Within 30 minutes
Repo By 12:30 p.m. Within 30 minutes
Reverse Repo By 12:00 p.m. Within 30 minutes
The guidelines as per the above table cannot be maintained properly because the deal ticket is
not used regularly. So the back office of the dealing house finds it difficult to judge the proper
time.
Counterparty Limits:
The issue of counterparty limits arises from the risk that a customer with whom an organization
had a reciprocal agreement defaults. Credit risk is the risk that counterparty to a financial
transaction - here a foreign exchange contract, may become unable to perform as per its
obligation. The extent of risk depends on whether the other party's inability to pay is established
before the value date or is on the same value date of the foreign exchange contract. In Mercantile
Bank counter party limit is determined by the board of directors. In determining the limit board
considers the credit worthiness and relationship of counter party. If the limit can not judge
properly bank will have to face following risks,
Settlement risk: The risk on the settlement day that one counterparty pays funds or delivers a
security to fulfill its side of the contractual agreement, but the other counterparty tails on its side
to pay or deliver. This occurs when items of agreed upon original equal values are not
simultaneously exchanged between counterparties; and/or when an organization's funds are
released without knowledge that the counter value items have been received. Typically the
duration is overnight/ over weekend, or in some cases even longer i.e., until the organization
receives the confirmation of receipt of funds. The risk is that the organization delivers but does
not receive delivery. In this situation 100% of the principal amount is at risk. The risk may be
greater than 100% if in addition there was an adverse price fluctuation between the contract price
and the market price.
Pre-settlement risk: The risk that a client defaults on its agreement with the organization before
the settlement day. Whilst the organization has not paid away any funds, it still has to replace the
contract at the current market rates, which might have moved against it. In this case the
organization is exposed to possible adverse price fluctuations between the contract price and the
market price on the date of default or final liquidation. The organization's loss would then be the
difference between the original contract price and the current market price on the date of default.
All banking organizations must have appropriate counterparty limits in place for their treasuries.
The limit structure will depend on each organization's credit risk appetite based on their credit
risk policies as well as target market catena. All such credit risk limits should be set by the
organization's credit risk approving unit, which is independent of the treasury dealing function.
In judging the credit worthiness of the counterparty MBL uses the credit reports of D&B and other
authentic sources. Sometimes the rating of the counterparty from the Bankers almanac is also used.
Stop Loss Orders:
A stop loss limit for a product is generally a certain percentage of the organization's prior year profit
from that product. For example if an organization's FX trading revenue for the year 2002 was USD A,
the management/ market risk management unit may decide to accept a maximum of 10% loss of
that during the current year. In that case the stop loss limit for that organization for 2003 would be A
X 10%.
In managing the business within the stop loss limit, treasuries running overnight positions (within their
overnight limits) must leave appropriate overnight watch orders. In Mercantile Bank Ltd. the limit
is fifteen percent. So this year whenever the amount of loss reaches to 15% of the profit of the
year 2003, the stop loss order will come. So Mercantile Bank is conservative in the trading. As a
representative of third generation bank MBL did not get the chance to take part in big deals in the
previous years. So the amount of the profit is not significant for the foreign exchange market. Fifteen
percent of this profit is very much insignificant in the market. This conservatism in stop loss order
limit prevents MBL to operate in the foreign exchange market with its full capacity.
Triggers:
A trigger is a level of a position at which an organization decides that the management should be
made aware of. This may be in terms of a market value of a position or an unusual trading volume
etc. This is a predetermined level given by the management In MBL ALCO determines the trigger.
When a trigger is hit, the management needs to be informed of the same. Upon advised of a trigger,
the management usually decides on closer monitoring of the particular situation. In cases of a
loss trigger, the amount is generally set at a lower level than the stop loss limit (at which the
position has to be unwanted). In Mercantile Bank trigger is set at 90 percent of Stop Loss limit.
When the loss becomes 90 percent of stop loss limit then the management is informed to take
decision. In case of profit trigger the limit is decided on the market situation.
Appropriateness of Dealing:
While transacting with a client, a dealer of MBL generally aware of the counterparty's dealing style
& product mix and assess (prior to concluding a deal) whether the customer is dealing in an
"appropriate" manner. A dealer has the responsibility to ensure that the volumes of activity and
types of products transacted by a client are appropriate for that particular client and the risks of
these transactions are clearly understood by them. Prior to conclusion of a deal, a dealer needs to
assure that the counterparty is authorized to enter into such transaction (both from counterparty's
internal and regulatory perspective). Here dealer is working as the front office of the dealing room.
Appropriateness of dealing is judged by both the back and mid office. Front office of dealing room
conducts the dealing. Mid-office checks whether the deal is within the limit (daily dealing limit,
counter party limit and stop loss order limit).Back office of dealing room usually makes the
settlement
Rate Sheet Production:
Every day MBL Dealing Room has to produces rate sheet with the following features:
a. Rate for Import bill payment.
b. Rate for export bill negotiation for sight/usance.
c. Rate for inward and outward remittance.
d. Rate for TC and Cash note.
e. Indicative rate for internal transaction

This rate sheet is produced in those currencies for which MBL maintains Nostro a/c. i.e. USD, EURO,
GBP, JPY, SGD. USD/BDT rate is to calculate on the basis of prevailing free floating rate in the
inter-bank. On the other hand cross rate of other 4 (four) currencies is to obtained from Reuters
Money 2000 and published in the rate sheet after maintaining sufficient margin. Through this rate
sheet treasury maintains daily profitability with our branches and subsequent customers there on.
For Corporate Customers treasury may customize this rate but keeping in view the profitability of
the bank. Apart from exchange rates the following foreign currency interest rate is to be
incorporated.
a. LIBOR for US Dollar in different tenor,

b. NFCD/ RFCD rates for USD deposit.
Rate Appropriateness:
This exercise is carried out by the treasury back-office to check for whether all deals have been
dealt at market rates. Any deals done at off-market rates must be raised to the respective dealer
for a satisfactory explanation bringing this to the notice of the chief dealer. In case of a non-
acceptable justification provided by the dealer, the organization may decide to engage in further
investigation.
This monitoring process is placed to guard against application of any inappropriate rates.
Treasury front office primarily uses Reuters for pricing of its products and treasury operations
also collect most of the data for their independent verification process from the same source.
Following is a guide that is followed in the process of independent verification of prices for
various products/ instruments:
Instrument Source Frequency of Update Note
Spot FX Reuters / Once Daily Pages: AFX=,

National FXXZ, BD(F9)
Newspapers
Forward FX/ Reuters Once Daily In absence of an inter-

bank USD/BDT forward
Swaps Pages: AFX=, FXXZ, market, banks should use
BD (F9), LIBOR01, spreadsheets to determine
tenor-wise
GBPF-, EURF-, JPYF=,
forward premiums that
CHFF- etc. should be used for the
verification of
USD/BDT forward rates.
Cross Currency Reuters Once Daily
Pages: FX=
Foreign Reuters At Booking
For the information to determine the rate related with foreign exchange dealing Reuter is the main
source. MBL is a subscriber of Reuter, the dealing room has the opportunity to visit the pay site of
Reuter
The rate band for each instrument is fixed depending on the market liquidity and volatility for
each of them. An indication of the rate bands that is used by Treasury Operations of MBL for
their independent price verification process is shown in the following table. Here we see that for
spot rate both in Inter-bank and customer the band is wider than in the case of forward rate and
FCY borrowing. In forward rate there is more risk associated because bank has to judge future
trend for this rate determination. For call money bank has to consider the present situation, so
bank has the opportunity to make the band little wider i.e. 1% of the mid-rate of the market.
Instrument Rate Band
Spot Inter-bank For currencies other than BDT, for

contracts with USD FX on one side, a 1%
on each sides of the mid market rate can be
taken as guidance. For BDT it can be
within 5 paisa on either side of the base rate.
Spot Customer For Spot Customer FX, the band can be 2%

on either FX side.
Forward 25 pips on either side of the base swap rate

for currencies inter-bank FXagainst USD
other than JPY. 25 bps on either side of the
Swaps base swap rate for JPY.
FCY Borrowing 25 bps on either side of the base rate (quoted

on Reuters Lending for the particular tenor)
for on and off-shore deals
Call/Notice Money 1% on either side of mid rate of range

reported on Reuters BD page/ newspaper
Treasury of MBL always tries to maintain the rate according to the above table. But in operation
some deviation is occurred for unavoidable market forces.
MBL treasuries publish a rate sheet for retail FX transactions for various types of customer
related transactions in various currencies. Buy and sell rates for all currencies for all types of
transactions that are covered in the rate sheet is based on sufficient spreads taken from the bid/
offer of central bank's quote on USD/BDT for the day as well as spreads on cross currencies
available from Reuters. It is primarily designed to cover retail and small corporate FX
transactions. Correctness in preparation of rates for these transactions must be covered through
maker-checker control (as well as the automated banking system through defined bands in the
system). However, for certain customers, transaction rates might differ from the published rates.
In these instances there should either be standing instruction issued by the head of treasury or
the relevant rate exception signed by treasury personnel.
On customer FX, the rate bands are higher to accommodate higher spreads. However, since all
customer transactions are based on a principle of a positive spread, negative spreads for such
transactions must be highlighted as exceptions for explanations and approvals.
Deals Outstanding Limit:

In MBL Dealing room tries to maintain a null outstanding limit everyday to avoid the risk of
loss. If the outstanding limit stands in the profit side then the related dealer is advised to make a
watch order to a counter party. Here the watch order is given to that counter party who is in his
banking hour. So the party can affect the deal within the operating time. This policy minimizes
the risk of the open position. It is a good practice to monitor the total deals outstanding of the
treasury. This exercise is carried out by the treasury back office to check against any unusual
volumes of activity. For example, in a fast dealing environment, a dealer may make a mistake
and execute a deal with an additional zero that would make the dealt amount much higher than
intended. If a "deal outstanding" monitoring (by an independent unit) process is in place, this
would be highlighted and brought to the attention of the senior management for any appropriate
action.
Daily Treasury Risk Report:
The treasury back-office summarizes all daily positions particularly the end-of-day positions on
a report format for the information of the senior management. Such report is ideally contain
information about outstanding open position against limit, different currency-wise outstanding
exchange position (against limits if applicable), outstanding foreign exchange forward gaps in
different tenors, tenor-wise MCO report, interest rate exposures of the balance sheet,
counterparty credit limits usage, day's P&L against trigger & stop loss limit etc.
Code of Conduct:
Due to the special nature of job that dealers engage in, they are expected to act in a professional
and ethical manner]
Conversation Language:
All dealing related conversations taking place in the treasury is in an acceptable language for
operational clarity. To elaborate, all conversations on the Reuters Dealing System is in English
and all conversions over telephone is restricted to either in Bengali or in English.
Mandatory Leave:
The dealing functions are extremely sensitive involving wholesale and large amounts with
exposures to adverse market movements- There is also risk of mistakes not being unearthed. As a
result, for a particular dealer's functions to be run by a different dealer, all dealers are required to
be away from their desks for a certain period of time at one stretch during a year. During this
period, dealers are not expected to be in contact with their colleagues in the treasury area. Typically,
this period is defined as a continuous two weeks period. In Mercantile Bank Ltd. the provision of
mandatory leave has started from this year.
Chapter 6 Findings, Recommendations & Conclusions
General Problems of Mercantile Bank Limited, Main Branch
 Dollar Exchange Rate key problem for foreign exchange trading. Previously Bangladesh
Bank controlled every day dollar exchange rate. Presently bank internal division control
this exchange rate everyday for foreign trading.
 Present time in the World information technology very vital factor for communicate the
business transaction. In Mercantile Bank IT department not maintain standard service.
 Mercantile Bank Software PC Bank, 2000 are very old must be needed modern software
 Employee dissatisfaction: Because of late promotion and longer probationary period,
there is dissatisfaction among the employee. Late increment in salary is another cause
for employee dissatisfaction.
 Centralization: The bank is too much centralized .For each and every work branch office
has to get permission from the head office. The head office tightly controls each and
every branch office. This dependency on head office causes slow down their activities.
 Advertising and promotion: Advertising and promotion is one of the weak point of
MBL. MBL does not have any effective marketing activities. Other banks have better
marketing strategy.
 MBL concentrate highly on import loan and for export they deal only garments. It will
be risky drive because in recent time garments export has been started to decline.
 Interest rate on Deposit is much higher than other banks, which increase their cost of fund
and it dimish the opportunity to provide loan at lower interest rate. It makes high demand
on short term deposit and manage these liabilities with loan they might need to borrow
from call money market.
 MBL has committed to their prospective customers to honor its of cheque with in 30
second after submission but unfortunately they are not able to fulfill this.
 MBL does not offer loan to its own staff except AVP level, where other banks are doing
it promptly. Therefore, its stall' loosing concentration in work.
 MBL is not providing satisfactory ATM Card Service (Q cash). Most of the banks at
present providing these facilities because it is very important desire of a financial
institution now days. But the performance of this card at MBL is poor. Because of
limited service center, you cannot use your Q-cash card to pay for goods and services by
debating or by credit your account directly.
 MBL does not provide any locker service to its customer. So they are losing some
valuable customers .
 Limitation of information system (PC Bank): PC bank is not comprehensive banking

software .It is desirable mat a more comprehensive banking should replace PC bank
system.
 The client has to repay the money in the particular branch from where he/she got the
loan. That's why, whenever a customer wants to repay the installment, communication
problem sometimes force him/her to become defaulter.
 Mercantile Bank Ltd. internal Decoration is very poor. Present time private banking
sector attractive decoration build up Bank image.
 Shortage place for employee done the job another important findings.
 Q-cash is not available for general public but its also use only bank employee.
 Locker service is not available in Mercantile Bank Ltd.
Recommendation
 MBL should pursue advertisement campaign in order to build a strong image among the
people. They should carry out aggressive marketing campaign to attract clients. They can
give advertisements in newspaper and magazine, television and neon signs.
 MBL can pursue a diversification strategy in expending its current line of business. The
management can consider options of starting merchant banking, for minimizing the risk and
getting more return they should prepare portfolio management.
 Keep the given commitment: MBL has committed to their prospective customers to honor it's of
cheque with in 30 second after submission but unfortunately they are not able to fulfill this, I
think the bank should try to keep its commitment hearty or it should be remove from the
char act characteristics of MBL otherwise the customers can think that the bank has no
uniformity between its word and action.
 MBL does not offer loan to its own staff except AVP level, where other banks are doing it
promptly. Therefore, its staff loosing concentration in work. MBL should provide loans to their
all staff.
 The client has to repay the money in the particular branch from where he/she got the
loan. That's why, whenever a customer wants to repay the installment, communication
problem sometimes force him/her to become defaulter. If the MBL allows the clients to
repays money at any branches she/he wants, thus the defaultation rate may become
lower.
 They should try to improve the Q cash system and should improve the satisfaction level
of Q -cash.
 They should give their employee more increment in salary. It would motivate the staff to
perform well in the organization.
 The dependency on head office in every step should be waived. They should permit the
branches to work independently.
 They should not concentrate only garments sectors; they should concentrate in different
sectors.
 It is desirable that a more comprehensive banking should replace PC bank system.
 Must be improved decoration.
 Must be introduced available Locker service.
 Q-Cash will be available for general public.
 IT Department must will be developed.

Conclusions
The MBL has been trying to operate its business successfully in Bangladesh since 1999. MBL
has already developed an image of goodwill among its clientele by offering its excellent services.
This success has resulted from dedication, commitment and dynamic leadership of its
management over the periods. During the short span of time of its operation, the bank bas
successfully grabbed a position as a progressive and dynamic financial institution in the country.
If the bank goes this way, it is expected that in the near future MBL may become one of the top
performers in the banking sector.
Total deposit of MBL, Main branch was Tk. 12248954021.21 as on end of December, 2005
where as total loans and advances were Tk. 9129763,333,30 December, 2005. Here I observed
it’s deposit figure is strong. The bank should take necessary action for maintaining this deposit
figure in future.
Bibliography
1. L.R. Chowdhury, "A Textbook on Foreign Exchange ", Fair Corporation (2003)
2. Bangladesh Bank Manual, "Foreign Exchange Manual", Vol. l & 2
3. Bangladesh Bank Manual, "Foreign Exchange Risk Management'
4. Mercantile Bank Ltd. Manual," Foreign Exchange"
5. Mercantile Bank Ltd. "Annual Report.
6. www.bangladesh-bank.org
7. www.mblbd.org
8. www.EPB.org
9. www.google.com
Appendices: 1
Questionnaire & answers
1. What types of risks involved in Foreign Exchange?

 Credit risk
 Market risk
 Operational risk
 All of them
Answer: All of them.
2. When Bangladeshi Tk became convertible into current account of foreign currency?

 1994
 1995
 1985
 1971
Answer: 1994.
3.What factors played vital role to flourish forign exchange market.
 Exports
 Imports
 Foreign aid
 Remittance
 All of them.
Answers: All of them.

4.What is the overall scenerio of foreingn exchnge rate of Bangladesh?
 Good
 Favorable
 bad
 Unfavorable
 Attractive
Answer: Favorable.
Appendices: 2
Bangladesh Bank Guidelines
Responsibilities of Treasury Department
The activities of a treasury can be categorized into four major functions as follows:
• Foreign exchange
• Money market
• Asset Liability Management
• Fixed Income
Some of the typical products that would fall under treasury's functions can be listed as follows:
• Spot foreign exchange
• Forward foreign exchange
• Currency swap
• Interest rate swap
• Forward rate agreement
• Non-deliverable forward exchange
• FX options
• Overnight deposits
• Term deposits
• Coupon securities
• Discounted securities
Following is a list of some of the common functions that today's treasuries perform:
• Statutory management
• Limits monitoring and management
• Adherence to various internal as well as regulatory policies
• Minimization of risk
• Optimization of risk return through specialization
• Monitoring & management of various Balance Sheet gaps

• Monitoring & management of various foreign exchange and money market
positions
• Monitoring & management of various cash flows and cash positions
• Funding of the Balance Sheet at optimum prices
• The head of the treasury department is the main driver of the ALCO activities/ discussions
• Propose interest rate matrix to the ALCO
• Propose various investment options to the ALCO
• Analyze various economic trends and propose Balance Sheet Strategy to the ALCO
• Quotation of various foreign exchange rates to customers
• Dealing in foreign exchange for position covering as well as for own account trading
• Various funding activities through currency swaps
• Close liaise with regulators
• Provide structured treasury solutions to customer
• Remain vigilant for any arbitrage opportunities
• Marketing activities for future business growth
• Proposals/ renewals for various internal limits
• Estimate daily P&L and work with reporting unit in resolving any difference
• Record/ maintain all foreign exchange and money market positions and check for
differences with system generated/ back-office reports
To support the activities of treasury, an independent treasury back-office is required to function
reporting through a different organizational chain. Some of the major functions of a treasury
support unit are as follows:
• Input, verification and settlement of deals
• Preparation of currency positions (of previous day-end) and report to dealers prior to
commencement of day's dealings
• Reconciliation of currency positions
• Rate appropriateness function for all deals done
• Revaluation of all foreign exchange positions at a pre-determined frequency
 Managing discrepancies and disputes
• Daily calculation for adherence to statutory maintenance
• Reconciliation of nostro accounts
• Claim/ pay good value date effect of late settlements
• Monitor for dealer's adherence to various internal and regulatory limits
• Monitor for dealer's adherence to various counterparty limits
• Prepare and monitor all balance sheet gaps
• Report any limit excesses
• Various internal and regulatory reporting.
Policy Statement for Dealing Room Operation:
Currency pair for position taking:
Currency positions may only be held in USD/BDT currency pair to facilitate handling of normal
commercial and financial transactions, which includes minimum working balances in Nostro
Accounts in foreign currencies.
Limit and Sub-Limit in USD:
All foreign Exchange exposure limits and also currency -wise sub-limits are to be expressed in
terms of US$.
Restriction on Forward Positioning:
Only spot positions may be held, no mismatch and /or un-matched forward positions are allowed
to be held. It follows, therefore, that while forward deals may be undertaken for customers such
deals, are immediately covered by matching deals in the market, with no gaps in amounts and
periods.
Restriction on Proprietary Position Taking:
Dealing Room is not authorized to enter into Foreign Exchange open position on their own
account.
Separation of Dealing Room and Back Office:
Foreign Exchange operation should be so organized that there will be clear and distinct
separation of the Dealing Room and Back office.
Restriction on Un-Matched Forward Exchange:
Un-matched/mis-matched forward exchange deals which would cause open position are not
permitted. The only forward exchange deals permitted are those for customers.
Daily Revaluation of FCY Asset & Liability:
Revaluation of Foreign Currency Assets and liabilities will be on daily basis. Forward positions
will be revalued only at the time of liquidation.
Forward and Swap as per Guideline of Central Bank:
All forward deals and swaps must follow the guidelines and restrictions given by the central
bank.
Counter Party Limit Books:
Dealing Room will maintain counter party limit books which will include records of all day to
day customer transactions and inter-bank transactions.
Dealing Room Staffing:
There should be adequate number of officers with technical skills and knowledge.
Standard Logistic Support:
Following standard logistic support to be maintained:
a) A separate dealing room with authorized entry only.
b) Reuter connectivity with real time information availability.
c) Standard communication tools such as e-mail with internet and intranet facilities, fax,
telephone, mobile, adequate computer logistics etc.
Liaison with Foreign Exchange and Money Market:
Effective FCY transactions involving BDT should be instantly and effectively

communicated to Money Market segment of dealing room.
Guideline for Foreign Exchange Dealing Room
Guideline for Dealings Room operation covers Sale-Purchase/ Merchant transaction of

Mercantile Bank Ltd i.e. for any Dealing Room operation an underlying customer transaction
has to be there. In case of proprietary trading only USD/BDT currency pair is allowed. Apart
from that no Foreign Currency trading should be in speculative nature. All dealing transactions
must be supported by approval of the competent authority.
Sale Transaction to Customers:
Sale Transaction can be of following nature:
Foreign Currency sale against BDT - Retail
Foreign Currency sale to retail customer for FTT, FDD and TC should be guided by TT & OD
rate of rate sheet. Point of Sales may be allowed to take BC rate and the difference between BC
and TT OD rate may be refurnished from treasury a/c to particular branch's account.
Foreign Currency sale against Foreign Currency- Retail
Foreign Currency sale to retail customer for FTT, FDD and TC should be guided by mid rate of
the respective currency. In case of conversion of foreign currency to another foreign currency the
prevailing rate in international market is to be applied.
Foreign currency sale against BDT-Import
Foreign Currency sale to Importer should be guided by BC rate of Rate Sheet. In addition to that
rate can be negotiable for corporate customers. Any higher rate of selling applied to customers
other than the dealt rate by the corporate units the difference may be credited to the respective
corporate units from treasury. In case of application of lower rate to customers the difference
should be credited to treasury's account from the respective corporate branch unit.
Foreign currency sale against Foreign Currency-Import
Import payment made out of FC margin a/c / retention Quota a/c and special payment facility
(Import payment out of export proceeds within 1 month) can be made in respective currency's
mid rate. In case of conversion of foreign currency to another foreign currency the prevailing rate
in international market is to be applied.
Forward Foreign Currency sale against BDT;
Forward Foreign Currency can be sold to importers. In that case the quoted currency
should be against BDT and the rates incorporated in the rate sheet for the structured time frame
(1 Month, 3Month & 6 Month) can be applied. Other than structured time frame Dealing Room
can enter into transaction with different tenors. Apart from that forward rates can be of
customized nature for corporate customers Forward Foreign Currency can be sold to any
importer making payment out of their FC margin and Retention Quota a/c for the desired
Currency pair other than BDT. Forward transaction must follow the guidelines issued by the
Central Bank.
Forward Foreign Currency sale against Foreign Currency
Forward Foreign Currency can be sold to any importer making payment out of their FC margin
and Retention Quota a/c for the desired Currency pair other than BDT. In case of conversion of
foreign currency to another foreign currency the prevailing rate in international market is to be
applied. Forward transaction must follow the guidelines issued by the Central Bank.
Purchase Transaction from Customers:
Purchase Transaction can be of following nature:
Foreign Currency purchase against BDT - Retail
Foreign Currency purchase from retail customer for inward FTT should be guided by TT Clean
rate of rate sheet. Foreign Currency purchase from retail customer for FDD should be guided by
TT Doc rate of rate sheet. In case of corporate customers customize rate can be applied.
Foreign Currency purchase against Foreign Currency-Retail
Foreign Currency purchase from retail customer for FTT, FDD should be guided by mid rate of
the respective currency. In case of conversion of foreign currency to another foreign currency the
Foreign currency Purchase against BDT-Export
Foreign Currency purchase from exporters should be guided by TT Clean rate of Rate Sheet for
payment against clean bills for collection. In addition to that TT Doc rate is to be applied for
export bills negotiation. Usage rate for different tenors are similarly applicable for time export
bills. Apart from that rate can be negotiable for corporate customers. Any lower rate of buying
applied to customers other than the dealt rate by the corporate units: the difference may be
credited to the respective corporate units from treasury. In case of application of higher rate to
customers the difference should be credited to treasury's account from the respective corporate/
branch unit.
Foreign currency Purchase against Foreign Currency-Export
For crediting export proceeds into FC margin a/c / retention Quota a/c; respective currency's mid
rate is to be applied. In case of conversion of foreign currency to another foreign currency the
Forward Foreign Currency purchase against BDT:
Forward Foreign Currency can be purchased from exporters. In that case the quoted currency
should be against BDT and the rates incorporated in the rate sheet for the structured time frame
(1 Month, 3Month & 6 Month) can be applied. Other than structured time frame Dealing Room
can enter into transaction with different tenors. Apart from that forward rates can be of
customized nature for corporate customers. Forward transaction must follow the guidelines
issued by the Central Bank.
Forward Foreign Currency purchase against Foreign Currency
Forward Foreign Currency can be purchased from any exporter for conversion out of their FC
margin and Retention Quota a/c for the desired Currency pair other than BDT. In case of
conversion of foreign currency to another foreign currency the prevailing rate in international
market is to be applied. Forward transaction must follow the guidelines issued by the Central
Bank.
Encashment/Purchase of Foreign Currency
Any encashment of Foreign Currency into BDT can be done from Customers FC A/c by
applying TT Clean/ TT doc rate by examining the nature of transaction.
Dealing in Inter Bank Market:

Dealing in Interbank Spot market for USD/BDT currency pair is allowed subject to Overbought/
Oversold limit of Exchange Position approved by Bangladesh Bank. The applicable rate for
interbank transaction should be on market. Off market rate transaction is not allowed. In this
connection arbitrage function for other currency pair is allowed. In case of any position taking/
speculation in any currency pair is not allowed. For any Forward and Swap transaction rates
should within the market dynamics (Interest rate/ exchange rate/ annualization of tenor).
Interbank Spot, Forward and Swap transaction must follow the Central Bank's guidelines issued
from time to time.
3.6.4. Special Fund Arrangement in Foreign Currency:
Dealing Room should facilitate for procurement and management for any foreign currency
special funding arrangement with Bangladesh Bank. In this connection JDRG ( Japanese Grant)
and EDF ( Exporters Development Fund) can be cited as example.
Fund Management and Liquidity Management:
For Liquidity of the foreign currency, our Exchange Position has permitted up to USD 2.0
million in both short/long position. In this connection the following method is applied for
liquidity measurement.
Supply of Foreign Currency

Closing Balance of All Nostro a/c.
Plus Export bills realization
Plus Inward Remittance
Plus_______ Encashment of FC
Total Supply of FC
Demand of Foreign Currency
Import bills payment
Plus______ Outward remittance
Total Demand of FC
(Total Supply of FC - Total Demand of FC)= Net liquid position of Foreign Currency After
deciding bank's liquidity either in short/ long position the Dealers may square up by participating
in inter-bank dealing market.
NOSTRO Management:
After liquidity is maintained Dealing room should maintain the Nostro Position according to the
movement of Nostro.
Model Control Policy:
Any banking organization and particularly the treasuries use models for the following reasons:
• To generate valuations used in the various financial statements
• To produce market risk measurements used by independent risk management to monitor

risk exposures
All financial models that are used for updating the organization's independent risk monitoring,
must be validated and periodically reviewed by qualified personnel independent of the area that
creates such models. The models include valuation and risk measurement systems that are
developed in-house, certain models on spreadsheets, and models within vendor systems.
Model Validation is the process through which models are independently and comprehensively
evaluated by reviewing underlying assumptions, verifying mathematical formulae, testing the
models to verify proper implementation and assessing any weaknesses and ensuring appropriate
application. The validation process of a model reduces the risk associated with using a model
that has flaws in the underlying assumptions, errors in its implementation and/or is used
inappropriately.
Model Validation is generally performed only once on a model - subsequent re-validations on

previously validated models are required only if analytic changes are made to the model that
affect valuation and/or risk measurement calculations. Model Assumption Reviews must be
conducted at least annually, or more frequently as warranted by business and market conditions.
The originator of a model must ensure that it is documented, resides in a control environment
and any change to an existing model is reported. The Treasuries using the financial models, in
conjunction with their systems support group, are ultimately responsible for ensuring that all
models reside in control environments.
A model validation process is not applicable to financial models which only perform simple
arithmetic operations. These may include, but are not limited to, value-at-close calculations,
earnings-at-risk calculations, interest accrual calculations, and aggregation or consolidation of
risk exposures to compare against risk limits.
Exchange Position Management:
Dealing Room must ensure to prepare at daily basis the Foreign Currency Exchange Position: the
regulatory requirement of Bangladesh Bank and to maintain the limit of the same set by them.
Record Keeping:
Dealers must maintain proper records of all deals on daily basis duly authenticated.
Maintaining Blotter:
Dealers will maintain the blotter properly. Once a deal is done, the dealer will record the deal
immediately on the blotter and update the position.
Guideline for Back Office & General Control Procedure
Front Office and Back Office duties and reporting lines are segregated for Foreign Exchange
dealing. Following are the general guidelines for back office and system control procedure:
General Guidelines for Back Office:
Deal Confirmation;
As per the deal slip, confirmation letter is prepared and forwarded to the counter party.
Counter party's confirmation is also checked with the confirmation letter of Mercantile Bank
Limited.
Deal Settlement:
Deals to be settled as per the deals and as per value date. Settlement to be done to the agreed
account. Deal settlement to be checked on regular basis.
NOSTRO Account Reconciliation:
Mercantile Bank Limited maintains various nostro accounts in order to conduct operations in
different currencies. Nostro account reconciliation will be done by the back office. System will
automatically reconcile the entries as per the rules set in the system. After every closure of
business day the statement of reconciliation status is reported by the system which is verified by
the back office on regular basis.
Compliance of Front Office Operation and Settlement of Disputes:
For each and every transaction the following areas have to be complied with the guideline,
central bank's regulations and market practices:
a) All rate applied for customer transaction(s) must be guided by rate sheet and for interbank
transaction(s) the rate should be as per the market. For cross checking purpose, regularly the
consolidated rate sheet of BAFEDA should be consulted.
b) Counter Party Limit should be monitored on transaction basis.
c) For settlement(s) of inter-bank market SSI should be up-dated on regular basis.
d) For any delay / non-settlement of deal by counter-party should be taken into consideration
immediately for necessary settlement within reasonable time.
e) Any claim regarding delay/ non-settlement of deal from the part of the bank should be
checked and settled within reasonable time.
Reports Generation;
The management usually gets the transaction detailed and other positions by the reports
generated by the system. The reports are known as BO reports. In addition to this Management
can see the position at any time by logging into the system.
Record Keeping and Reviewing.'
Back office will maintain the records properly for reporting and reviewing purpose. Records and
reports should be provided to the competent authority as and when needed.
General Control Procedure by the System:
Back office operation will be under an automated platform.
 Controlled access to the system to be ensured through a User Profile defining activities
containing user ID and password.
 Dual access control through maker and checker roles to be ensured.
 Maker should save the contract of the transaction in the system to be checked with
source document and duly authorized by the authorizer.
 Authorizer must be a designated person who is different than the maker,
 Accounting entries has to be system controlled and parameterized as per Mercantile
Bank Limited's GL concept.
 The unique User ED and a secret password will be duly selected and approved by the
competent authority.
 For any activity involving movement of funds and/or addition or modification of
information, MIS tracing or any other activities, users (maker and checker) shall be
accountable. There should be user level responsibility to make sure that the activity has
been done properly.
 Source documents should also be maintained properly.
 Performed jobs should be re-checked again by a different officer (third party) on daily
basis as per access authority and role profile.
 End of Day (EOD) transactions to be rechecked by the user before leaving the office.
 Every user should keep her/his password secret for safety and security of the Bank as
well as that of own self. User also should keep in mind that unique User ID and secret
password is as good as signature.
 Under no circumstances any password should be disclosed. Any user, ownself, will be
able to change own password as and when needed and a system driven reminder will be
available for this purpose.
 There should be end of cycle approach in the system to trace out any unauthorized entry.
 The EOD will be carried out by a separate department/users posted in Information
Technology (IT) Department.
Management Reporting & Reviewing

Reporting to Senior Management:
All deals the dealers make will be verified by the treasury back-office on daily basis. If there is
any exception/anomaly found by the back office will be reported to the senior management
immediately as "Exception Report".
In addition to the above the treasury front-office will summarize daily, weekly and monthly
transaction position and submit the following reports to the senior management.
 Statement of Exchange Position (currency-wise)

 Transaction Summary
 Fund Management Report
Reviewing of Rates (FX & FC Interest) By ALCO:
Asset Liability Committee (ALCO) will periodically review Foreign Exchange Rates and
Foreign Currency Interest Rates after having market analysis and review by the treasury
department. For any contingency situation ALCO members should be communicated
immediately by the treasury and ALCO meeting should be arranged accordingly for ultimate
decision.
Now that we have known about the policy and guideline for dealing room, guideline for Back
Office and general control procedure, and how reports are generated and managed, we will now
take a look at the process of dealing and the related risk associated with this and also compare it
with that of standard set by Bangladesh Bank.
Process of Transaction:
In a proper treasury setup, a dealer strikes a deal in the market and maintains his/ her own record
for monitoring the exchange position. Within a reasonable time, s/he passes on the detailed
information of the deal to the treasury back office. The back office arranges for the deal
confirmation with the counterparty, arranges settlement, reconciles exchange positions and
advises to treasury and runs the valuation on a periodic basis. A detailed flowchart of this
function is shown below
The Process Flowchart
Treasury back
office
exchanges deal
confirmations
with
counterparty
Dealer strickes Enters deal into

blotter, rasies deal
a deal
ticket, sends ticket to
treasury back office
Passes all
necessary
entres
Advises treasury Reconciles

of accurate exchange position
Settles the deal
position
Fig 11. Process Flowchart of Dealing
The dealing function requires the dealers to make very quick decisions either for taking
advantages of any market movements or for unwinding an unfavorable position. Also, the
treasury dealing is a wholesale function that involves large lots. These together make the job of a
dealer requiring:
 Proper information sources e.g. Reuters Money 2000, Bloomberg, financial TV channels
etc.
 Adequate and dedicated communication tools e.g. Reuters Dealing System, telephone,
fax, telex etc.
 Specially designed dealing desks to appropriately accommodate the various information
and communication tools.
 High level of dealing skills.
 Quick decision making authority
 Independent decision making authority
 Specific task allocations
In order to achieve the optimum level of efficiency, returns and most importantly
controls, there are certain processes that the organization's management must put in place. The
next chapter will discuss whether Mercantile Bank Limited is complying with the guidelines
provided by Bangladesh Bank.
Appendice 3
Terminology
Following are the explanation of some terminologies used in this manual:
 Counter-party Limit Books: Books containing the limits approved for different counter-
party.
 Exchange Position. Exchange position refers to the position of FCY to be reported as per
prescribed format of Bangladesh Bank.
 Inter-bank Transactions: Inter-bank Transactions indicates the transactions which
involves the banks and financial institutions in the inter-bank market.
 Limit and Sub-Limit: Limit and Sub-Limit expresses the approved aggregate value for
particular currency (currency limit) either booked as asset or as liability.
 Merchant Transaction: Merchant Transaction indicates those transactions which involves
in-house customers i.e. exporter, importer and remitter of the bank.
 Open Position Limit: Open Position Limit indicates the limit approved by Bangladesh
Bank for maximum long and short aggregate currency position in equivalent USD.
 Position Taking: Position Taking refers to the transactions for which dealers enter into
buy / sell in a particular currency with profit motive through speculation. .
 Proprietory Position Taking: Same as position taking.
 Revaluation: Revaluation of both FCY asset and liability as per standard mid rate of day's
rate sheet.
 Un-matched Forward Exchange. Un-matched Forward Exchange indicates that the legs
of forward contract are un-matched in terms of amount and tenor.

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Chapter 1 Introduction

The broad objectives of the report are-

The Specific objectives are -

Scope of the study:

The methodology of the report is given below,

Limitations of the Study:

The following limitations are apparent in the report—

2.1 Mercantile bank at a glance

2.2 Vision statement of Mercantile Bank Limited

Would make finest corporate citizen

2.3 Mission statement of Mercantile Bank Limited

2.4 Objectives of Mercantile Bank Limited

 To achieve positive Economic Value Added (EVA) each year.

 To achieve 20% return on shareholders' equity or more, on average.

2.5 Core values of Mercantile Bank Limited

For the customers:

For the shareholders:

For the employees:

For the community:

Adopting the state-of-the art technology in banking operations.

2.6 The corporate Structure of Mercantile Bank Limited

Foreign Exchange Risk:

Another type of definition says-

Risk Involved in Foreign Exchange Operation:

- Market risk and

Credit Risk arises from an obligor's failure to perform as agreed.

Reputation risk or franchise risk - Arises from negative public opinion.

Foreign Exchange Rate:

Table 2: Exchange Rate and Devaluation before and after Floating

PERIOD Tk/USS Devaluation PERIOD Tk/US$ Devaluation

1990-91 35.68 -2.49 1998-99 48.06 -4.54

1991-92 38.15 -8.23 1 999-00 50.31 -4.90

1992-93 39.14 -2.01 2000-01 53.96 -10.53

1993-94 40.00 -1.12 2001-02 57.43 -1.55

1994-95 40.20 0.37 2002-03 57.90 0.00

1995-96 40.84 -3.95 2003-04 68.39 -19.45

1996-97 42.60 -4.35 2004-05 68.39 -19.45

PERIOD Tk/USS PERIOD Tk/USS

1990-91 35.68 May'04 59.63

1991-92 38.15 June'04 60.07

1992-93 39.14 July,04 59.72

1993-94 40.00 August,04 59.39

1994-95 40.20 September,04 59.46

1995-96 40.84 October’ 04 59.60

1997-98 45.46 November’ 04 59.70

1998-99 48.06 December’ 04 59.85

1999-00 50.31 January, 05 60.02

2000-01 53.96 February’05 60.95

2002-03 57.90 April’ 05 62.75

July’ 03 58.40 May’ 05 63.40

August'03 58.42 June’ 05 64.65

September'03 58.43 July’ 05 65.20

October'03 58.42 August’ 05 65.60

November'03 58.45 September’ 05 66.10

December'03 58.55 October’ 05 66.95

January'04 58.91 November’ 05 67.50

March'04 59.01 December’ 05 68.30

April'04 59.04 January’ 06 68.90

Period Devalued Period Devalued

July’ 03 -0.99 December’ 03 -0.81

August; 03 0.11 January’ 04 0.10

September’ 03 -0.01 February’ 04 -0.12

October’ 03 -0.03 March’ 04 -0.08