ASSIGNMENT#2

Domestic Derivatives Market:

Current Derivatives Market:
State Bank has allowed limited number of derivative products (swaps and options) to the derivative
market participants with certain reporting and disclosure obligations and the market is used only for
hedging purpose. 
State Bank of Pakistan allows four types of derivative instruments namely:

i. Interest Rate Swaps: An interest rate swap is an agreement between two parties where one
stream of future interest payments is exchanged for another based on a given principal amount. 

ii. Forward Rate Agreements: A forward rate agreement (FRA) is an over-the-counter

contract between parties that determines the interest rate or exchange rate to be paid or received
on an obligation beginning at a future start date.

iii. Third Currency Options: they are used for exchange rate related risk hedging for trade
related transactions such as LC, exports, imports etc

iv. Cross Currency Swaps: A cross-currency swap is an over-the-counter derivative agreement

between two parties to exchange interest payments and principal on loans denominated in two
different currencies. In a cross-currency swap, a loan's interest payments and principal in one
currency would be exchanged for an equally valued loan and interest payments in a different
currency.

AUTHORIZED DERIVATIVE DEALERS:

“Authorized Derivatives Dealer (ADD)” are institutions that are licensed by SBP to undertake certain
derivative transactions. There are currently the following 06 Authorized Derivative Dealers in
Pakistan:

1. Citibank
2. Deutsche Bank
3. Faysal Bank Limited
4. Habib Bank Limited
5. Standard Chartered Bank (Pakistan) Limited
6. United Bank Limited

Non-Market Maker Financial Institutions:

Non-Market Maker Financial Institutions are financial institutions that execute derivatives
transactions with its customers with the intention to make a spread. It does not undertake any
Market Making and covers the transaction on a back-to-back basis. There is currently only one NMI
I.e. The Bank of Tokyo-Mitsubishi UFJ, Ltd. (FX Options Only).
SUBMITTED BY: MUHAMMAD ZEESHAN
BBA-VIII
SUBMITTED TO: SIR HAMMAD ZAFAR
ASSIGNMENT#1-KSE-100 INDEX
ASSIGNMENT#2-DERIVATIVES IN PAKISTAN
SUBJECT: TREASURY & FUNDS
MANAGEMENT