Fahad. Research Report

Research Report On:
“Money and Capital Market in

Bangladesh”
Submitted To:
Mr. S.M Shoaib
Assistant Professor,
Faculty of Business Administration,
University of Science & Technology,
Chittagong.
Submitted By:
Fahad Uddin
Roll: 978, Reg: 956,
Major: Finance,
Program: MBA (Regular),
Batch: 24th
Submission Date:
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LETTER OF TRANSMITTAL
August, 2020
Mr. S.M Shoaib,

Assistant Professor,
Faculty of Business Administration,
University of Science & Technology, Chittagong.
Subject: Submission of Research Report on “Money and Capital Market in Bangladesh ”
Dear Madam,
It is a great pleasure for me that I have the opportunity to submit my research report on “Money
and Capital Market in Bangladesh”. I tried my level best to gather relevant information for
making this report. I expect this paper to be informative as well as comprehensive.
It would be very kind of you to examine my paper work and enlighten me with further
suggestions to enhance my clarification. Your kind suggestions will persuade me to perform
better work in future.
It would be great pleasure for me if you kindly accept the term paper and forgive for any
shortcomings and mistakes.
Yours Sincerely,
__________________________
Name: Fahad Uddin

Roll: 978
Reg: 956
Major: Finance
Program: MBA (Regular)
Batch: 24th
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ACKNOWLEDGEMENT
At first, I want to thank our Almighty Allah who gave me energy and patient and also knowledge
for making this kind of report. With profound regard I gratefully acknowledge my honorable
Supervisor, Mr. S.M Shoaib, Assistant Professor, Faculty of Business Administration, University
of Science & Technology, Chittagong, for her tremendous support, outstanding guidance and
incredible supervision at the time of preparing my term paper. I am really grateful to her
immense co-operation and assistance. I also acknowledge with a deep sense of reverence, my
gratitude towards my family members, who have always supported me morally.
Finally, I would also like to thank Premier University Authority for providing me with
thisincredible opportunity to learn in the real world.
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TABLE OF CONTENTS
Chapter: One 1.1. Background of the Study: 07
Introductory Aspects 1.2. Objectives of the Study: 08
1.3. Scope of the study: 09
1.4 Methodology of the Study: 09
1.5 Limitations of the Study: 10
Chapter- Two 2.1. Money Market: 12

Theoretical Aspects 2.2. Features of Money Market 12
(Money and Capital 2.3. Participants of Money Market: 12
Market) 2.4. Money Market Instruments 14
2.5. Functions of Money Market 14
2.6. Definition of Capital Market: 15
2.7. Types of Capital Market: 15
2.8. Trade in stock/capital market 17
2.9. Capital Market Instruments 18
2.10. Importance of Capital Market: 23
2.11. Rules of listing companies in Capital Market: 25
2.12. Rules of Buying and Selling in Capital Market: 26
2.13. Stock exchange: 27
2.14. Features of stock exchange: 28
Chapter- Three 3.1. Money Market in Bangladesh 31

PRACTICAL ASPECTS 3.2. Composition of Money Market 33
(Money and Capital 3.3. Types of Money Market Instruments 34
Market in 3.4. Draw backs of Money Market Instruments 35
Bangladesh) 3.5. Bangladesh Capital Market 38
3.6. Structure of Bangladesh Stock Market 43
3.7 Security & Exchange Commission (SEC) 44
3.8. Criteria for public offer/listing in Capital Market in 45
Bangladesh
Chapter- Four 4.1. Findings of the Study 48

Analysis & 4.2. SWOT Analysis of Money and Capital Market in 49
Findings Bangladesh:
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Chapter Five 5.1 Recommendations: 54
Conclusionary
Aspects 5.2 Conclusion 55
Chapter- Six 6.1. References 57

Ending Matters
Chapter- One
INTRODUCTORY
ASPECTS
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Chapter One: Introductory Aspects
1.1. Background of the Study:
The financial market consists of money market and capital market. Short term securities are
traded in money market and long term securities are traded in capital market. Money market has
become a component of the financial market for buying and selling of securities of short-term
maturities, of one year or less, such as treasury bills and commercial papers. It is generally
considered to be the more active place, where government and other securities of very smaller
duration time frame are traded. Bangladesh has a very active money market, where a host of
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instruments are traded. The money market in Bangladesh is in its transitional stage. The
development of Capital Market has been receiving heightened attention from the policymakers in
recent years. One explanation lies in the fundamental shift of development strategy reflected in
the nearly universal embrace of the private sector as an engine of economic growth. The
governments in both developed and developing countries, the international financial institutions
which exert tremendous influence on the policy-making apparatus of developing countries and,
to a great extent, the intelligentsia have all joined together as ardent advocates of private
entrepreneurship. Capital Market can play an important role in accelerating economic
development through efficient intermediation of savings into productive investments and in
fostering the growth of private entrepreneurship.
This report has been originated as the course requirement of the MBA program. With the
discussion of my supervisor, I decided to prepare term paper on the Money and Capital Market
in Bangladesh. I am interested to work on this topic because the Capital Market was one of the
most discussed topics in the print media for bullish sign throughout the year. This paper work
helps me a lot to gather enough knowledge from practical field. I have given my best effort to
suitably apply my potentiality and theoretical knowledge to make the paper reliable and
information worthy hope my sincere effort will be regarded as successful if this dissertation
fulfills the objective of the program.
1.2. Objectives of the Study:
The main objective of the study is to get an idea about the Money Market & Capital Market
scenario and the present condition of Capital Market and Money Market how to develop it. In
this reports the following objectives will be persuades:
Main Objectives:
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 To fulfill the partial requirements of Masters of Business Administration (MBA)
Program.
Others Objectives:
 To know about the Money Market and Capital Market.
 To represent the overview of Money Market scenario and Dhaka Stock Exchange (DSE),
Chittagong Stock Exchange (CSE) Securities and Exchange Commission (SEC) in
Bangladesh Capital Market.
 To present the Bangladesh Capital Market in previous some years.
 To identify the money and capital market instruments in Bangladesh.
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1.3 Scope of the study:

We have known that any academic course which is set by educational institutions has a great
value when it has theoretical application in real life. We need proper application of knowledge to
get some benefit from theoretical knowledge in practical life. Building a strong base of
knowledge is possible through visiting somewhere physically. When theoretical knowledge is
obtained from a course of study, it is only the half way of the subject matter. Research report
implies the full application of the methods and procedures by acquiring knowledge of the subject
matter which can be fruitfully applied in daily life.
1.4 Methodology of the Study:
Most of the Analysis has been made on the basis of the objectives mentioned before in the
context of “Money and Capital Market in Bangladesh". This report has been written on the basis
of information collected from primary and secondary sources.
Methods of collecting Data:

In this Research report primary data is not used. Most of data are collected from the secondary
source.
1.3.1. Secondary Data:

The main sources of secondary data are:
 Website of Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE),
 Securities and Exchange Commission (SEC).
 News Paper articles.
 Journal and monthly review of Dhaka Stock Exchange.
 Report published by OSE, CSE and SEC.
 Different websites for report on Capital Market.
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1.5 Limitations of the Study:

To make a Research report various aspects and experience are needed. But I have faced some
barriers for making a complete and perfect report. These barriers or limitations, which hinder
my work are as follows:
 Difficulty in accessing data of its internal operations.

 Non-Availability of some preceding and latest data.
 Some information was with held to retain the confidentiality of the organization.
 The time span was not sufficient enough to learn all the activities of the organization
properly.
 Therefore, it was very difficult to carry out the whole analysis.
Chapter- Two
Theoretical Aspects (Money and
Capital Market)
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Chapter Two: Theoretical Aspects
2.1. Money Market:
The money market is where financial instruments with high liquidity and very short maturities
are traded. It is used by participants as a means for borrowing and lending in the short term, with
maturities that usually range from overnight to just under a year. Among the most common
money market instruments are Negotiable certificates of deposit (CDs), banker's acceptances,.
Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements
(repos).
Institutions that participate in the money market include banks that lend to one another and to
large companies in the euro currency and time deposit markets; companies that raise money by
selling commercial paper into the market, which can be bought by other companies or funds; and
investors who purchase bank CDs as a safe place to park money in the short term.
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2.2. Features of Money Market
 It is a wholesale market, as the transaction volume is large.

 Trading takes place over the telephone, after which written confirmation is done by way
of e-mails.
 Participants include banks, mutual funds, investment institutions and Central Banks.
 There is an impersonal relationship between the participants in the money market, and so,
pure competition exists.
 Money market operations focus on a particular area, which serves a region or an area. On
the basis of the market size and needs, the area may differ.
2.3. Participants of Money Market:

While all resident entities are participants in these markets, this section covers the larger and
major participants.
2.3.1 Central Government:
The Central Government is an issuer of Government of Securities and Treasury Bills (T-bills).
These instruments are issued to finance the government as well as for managing the
Government’s cash flow. Government of Securities are dated (dated securities are those which
have specific maturity and coupon payment dates embedded into the terms of issue) debt
obligations of the Central Government. T-bills are short-term debt obligations of the Central
Government.
2.3.2 State Government:
The State Governments issue securities termed as State Development Loans (SDLs), which are
medium to long-term maturity bonds floated to enable State Governments to fund their budget
deficits.
2.3.3 Public Sector Undertakings:
Public Sector Undertakings (PSUs) issue bonds which are medium to long-term coupon bearing
debt securities. PSU Bonds can be of two types: taxable and tax-free bonds. These bonds are
issued to finance the working capital requirements and long-term projects of public sector
undertakings. PSUs can also issue Commercial Paper to finance their working capital
requirements.
2.3.4 Scheduled Commercial Banks (SCBs):
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Banks issue Certificate of Deposit (CDs) which are unsecured, negotiable instruments. These are
usually issued at a discount to face value. They are issued in periods when bank deposits
volumes are low and banks perceive that they can get funds at low interest rates. Their period of
issue ranges from 7 days to 1 year.
2.3.5 Private Sector Companies:
Private Sector Companies issue commercial papers (CPs) and corporate debentures. CPs are
short-term, negotiable, discounted debt instruments. They are issued in the form of unsecured
promissory notes. They are issued when corporations want to raise their short-term capital
directly from the market instead of borrowing from banks.
2.3.6 General Insurance Companies:
General insurance companies (GICs) have to maintain certain funds which have to be invested in
approved investments. They participate in the G-Sec, Bond and short term money market as
lenders. It is seen that generally they do not access funds from these markets.
2.3.7 Life Insurance Companies:

Life Insurance Companies (LICs) invest their funds in G-Sec, Bond or short term money
markets. They have certain pre-determined thresholds as to how much they can invest in each
category of instruments.
2.3.8 Mutual Funds:
Mutual funds invest their funds in money market and debt instruments. The proportion of the
funds which they can invest in any one instrument varies according to the approved investment
pattern declared in each scheme.
2.4. Money Market Instruments

In this market, only those financial instruments are traded which are immediate substitutes for
money, which includes:
1. Call/Notice Money: When the money raised or borrowed on demand for a very short
term which ranges from one day to 14 days, then it may be called as notice money, and
when it exceeds 14 days it is termed as call money.
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2. Treasury Bills: These are short term, negotiable financial assets issued by the central
bank, on behalf of the government, for overcoming liquidity shortfalls.
3. Commercial Bills: A commercial bill is a negotiable, self-liquidating instrument that is
less risky in nature. When goods are bought on credit, these bills improve the liability to
make payment at the specified date.
4. Commercial Paper: It is an short term unsecured promissory note, issued by large and
creditworthy companies, at a discount on its face value and redeemable at its face value.
5. Certificate of Deposit: It is an unsecured, negotiable financial instrument which a bank
and financial institution issues to individuals, corporation, trust, funds etc. at a discount
on its face value and its maturity vary from 15 days to one year.
2.5. Functions of Money Market

The three basic functions of money market are:
 It provides a balancing tool for equating the demand for and supply of short term funds.
 It provides a centre for the intervention of central bank, for controlling liquidity and
general interest rate level.
 It provides a proper reach to the suppliers and users of the short term funds, to fulfil their
requirements, at a reasonable market clearing price.
2.6. Definition of Capital Market:
A capital market is a financial market in which long-term debt (over a year) or equity-backed
securities are bought and sold. Capital markets channel the wealth of savers to those who can put
it to long-term productive use, such as companies or governments making long-term
investments.
A capital market can be either a primary market or a secondary market. In primary markets, new
stock or bond issues are sold to investors, often via a mechanism known as underwriting. The
main entities seeking to raise long-term funds on the primary capital markets are governments
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(which may be municipal, local or national) and business enterprises (companies). Governments
issue only bonds, whereas companies often issue both equity and bonds.
Capital Market is one of the most vital components of a free market economy, as it provides
companies with access to capital in exchange for giving investors a slice of ownership of the
company. The Capital Market makes it possible to grow small initial sums of money into large
ones, and to become wealthy without taking the risk of starting a business or making the
sacrifices that often accompany a high-paying career.
2.7. Types of Capital Market:

The capital market can be split into two main sections:
2.7.1 Primary market
2.7.2 Secondary market
2.7.1 Primary Market:
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Primary Markets are the markets for trading of new securities never before issued. It is market in
which corporations (and government) raise new capital.
2.7.1.1 Initial Public Offering:
Initial public offering occurs when a company decides to go public. It is the first public sale of
firm’s stock.
2.7.1.2 Right offering:

In a right offering new shares are offered to the existing shareholder.
2.7.1.3 Private placement:
The firm sells securities directly to an investor or group of investors or large institutional
investors.
2.7.2 Secondary Market:
Secondary market deals with existing securities or previously issued securities. Securities can be
sold or bought from this market. In a stock exchange most of the trading figures comes from the
secondary market. Secondary markets can be categorized into two:
2.7.2.1 Organized Security Market or Auction Market:
The market where trading is carried out on floor of exchange through auction process (examples
include DSE & CSE).
2.7.2.2 Dealer market or over the counter (OTC) exchange:
In this market an intangible trading occurs that consists of a network of brokers and dealers
around the country. It is the market for trading securities that are not listed in the organized
exchange.
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2.8. Trade in stock/capital market:
Trade in Capital Markets means the transfer for money of a stock or security from a seller to a
buyer. This requires these two parties to agree on a price. Equities confer an ownership interest
in a particular company.
Participants in the Capital Market range from small individual stock investors to large trader
investors, who can be based anywhere in the world, and may include banks, insurance
companies, or pension funds, and hedge funds. Their buy or sell orders may be executed on their
behalf by a stock exchange trader.
A potential buyer bids a specific price for a stock, and a potential seller asks a specific price for
the same stock. Buying or selling at market means investors will accept any ask price or bid price
for the stock. When the bid and ask price match, a sale takes place, on a first-come-first-served
basis if there are multiple bidders or askers at a given price.
2.9. Capital Market Instruments:
Capital market instruments are longer term financial instruments in the form of debt or equity
that are traded either on a securities exchange or directly between investors and borrowers. We
provide an overview of the different types of instrument available.
The capital market is a market in which debt and equity securities are traded. Capital market
instruments have a maturity of 12 months or longer and are usually distinguished from short-
term money market instruments such as treasury bills, Certificates of Deposit (CDs), commercial
paper and bills of exchange, which have a maturity of up to 12 months.
The range of instruments available to both issuers and investors is wider on the capital market
than on the money market, as the capital market itself can be divided into equity and debt
markets:
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2.9.1 Equity markets.
Equity securities represent an ownership claim to the assets of a company. Equity securities have
no maturity and they do not oblige the issuer to pay fixed interest at regular intervals. Equity
securities are also subordinated to debt securities. As result it is expensive to raise funds by
issuing equity, but it provides the issuer with a considerable degree of flexibility.
2.9.1.1 Equity shares
Securities traded on the equity markets come in the form of shares. Shares are equity claims on
the net income and the assets of a company. The value of the shares traded in the capital markets
exceeds that of any other capital market instrument. There are two types of shares: common and
preferred shares.
2.9.1.2 Common shares
Common shares are characterized by their residual claim and limitedChapter

liability.Two: Theoretical
Residual claim Aspects
means that shareholders are subordinated in the priority of payment to all other claims on a
company’s assets and dividends. If a firm is liquidated, holders of common shares will only
receive payment for their shares after all other stakeholders – for example, bondholders, other
creditors, tax authorities, employees and suppliers – have been paid. Limited liability means that
in the event of bankruptcy an investor is not personally liable for the company’s obligation and
can lose at most the initial investment into the share.
2.9.1.3 Preferred shares
A preferred share is a special type of security which has a fixed periodic claim on a share of the
company’s profits. The payments based on the claim are called dividends. The security is called
a preferred share because the holder has a preferential claim to the profits ahead of common
shareholders. This means that dividends on preferred stock must be paid before any dividends on
common stock are paid.
2.9.2.1 Longer term fixed-income debt markets.
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Debt securities, in contrast to equity securities, accrue interest and are redeemed (paid out) on a
set maturity date. The investor into a debt security becomes a lender and creditor to the issuer.
All types of debt rank senior to equity.
2.9.2.2 Bonds
Any security that promises to pay a fixed coupon at regular intervals until medium- or long-term
maturity is considered a bond. There are however many different forms of bonds which are
modifications of the basic principles.
2.9.2.2.1 Domestic, foreign and Eurobonds
There is a general distinction between domestic bonds, (issued in the issuer’s own country),
foreign bonds (issued in a foreign country), and Eurobonds (issued in the currency of one
country but sold internationally). It is important to highlight the difference between ‘Eurobonds’,
that are issued internationally and ‘euro bonds’ – bonds that are denominated in euro irrespective
of the location.
2.9.2.2.2 Government bond market
Domestic debt markets are traditionally dominated by government debt as it offers good liquidity
and is considered virtually riskless. The risk of a government defaulting on debt repayments is
much lower than the same default risk for companies. As a result, government debt issues are
often used as a benchmark yield for corporate debt.
2.9.2.2.3 Corporate bonds
Companies, just like governments, often prefer to borrow in the medium- or long-term at a fixed
rate of interest. The credit rating of a company will have an effect on both the coupon and the
maturity that are available to the company when it issues a bond. The typical corporate bond
pays a coupon twice a year and pays off the face value when the bond matures. Corporate bonds
offer higher yields than government bonds of comparable maturity as they tend to be the riskier
investment.
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Maturity is one of the main features of a bond and indicates when the principal amount is going
to be paid back and for how long interest payments are going to be paid. Depending on their
maturity, corporate bonds fall into one of three categories:
 Short-term notes with a maturity of less than five years.
 Medium-term notes or bonds which have maturities of five to 12 years.
 Long term bonds featuring maturities of more than 12 years.
2.9.3 Different types of bonds/bond structures
Not all corporate bonds are traditional bonds which pay a fixed income at regular intervals
before they are redeemed at a fixed maturity date. The structure of bonds can vary with regard to
the coupon intervals, type of coupon, redeem ability, convertibility and many other features.
These are the most important variations:
2.9.4 Index-linked bonds
Similar to a floating rate note, index-linked bonds have a variable coupon depending on an
underlying index, such as the consumer price index or a commodity price or stock index. The
coupon paid is a set margin above the reference index.
2.9.5 Zero-coupon bonds
As the name indicates, zero-coupon bonds do not have a coupon. The return for the investor is
achieved by selling the bond at a significant discount to the nominal value of the bond which is
due at a fixed maturity.
The only cash flows in the life of the zero-coupon bond are the purchasing price and the
repayment of the nominal value or principal at maturity.
As there are no interest payments, the investor is not exposed to any reinvestment risk, the risk
that interest rates and hence reinvestment rates for coupon payments have fallen. As a result,
investors may accept a slightly lower yield for a zero-coupon bond.
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2.9.6 Strips
When a bond is stripped, the cash flows of a bond, in each coupon payment and the payment of
principal, are separated and can then be traded as individual zero coupon bonds. STRIPS is an
acronym for ‘Separate Trading of Registered Interest and Principal Securities’ but also relates to
the actual tearing off of interest coupons from paper securities.
2.9.7 Perpetual bonds
A perpetual bond does not have a redemption date and is redeemed only if the issuer goes into
liquidation. This means perpetual bonds pay coupons indefinitely. Interest is fixed for the initial
period or for the life of the bond. Perpetual bonds tend to have a call option, but in most cases
this option can only be exercised after 10 years or more. Most perpetual bonds are issued by
financial institutions.
2.9.8 Convertible bonds
Some corporate bonds have the option to convert the bond into a specified number of shares at
any point before the maturity date. The types of convertible bonds may be more attractive to
investors, as an increase of the share price will increase the value of the bond. This will allow the
issuer to lower the interest rate and reduce the financing costs in comparison to a non-convertible
bond.
2.9.9 Collateralization
Most corporate bonds are unsecured bonds – so-called debentures. In contrast to secured bonds
that are backed by collateral, debentures are only backed by the issuer’s general credit and its
capacity to generate sufficient cash flow to repay interest and principal. Subordinate debentures
have an even lower priority than debentures or secured bonds when it comes to claims on the
issuer’s assets in the event of a bankruptcy. In order to determine an issuer’s default risk with
regard to unsecured bonds, credit ratings are the key tool.
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2.9.10 Asset-backed securities (ABS)
Unlike a straightforward bond, where the investor relies on the issuer’s overall creditworthiness
to repay interest and principal, ABS are backed by a pool of assets. This pool of assets will
generate the necessary cash flow to service the related payments to investors and serve as
collateral. The assets are pooled to make the securitization economical and diversify the quality
of the underlying assets.
ABS allow companies to raise funds and develop new sources of capital by borrowing against
assets. The types of assets that can be securitized cover a wide range of receivables from
residential mortgages to leasing and loan agreements or credit card receivables.
2.9.11 Calls and puts
Chapter
Many corporate bonds are issued with a call option. Callable bonds give Two:the
the issuer Theoretical
option to Aspects
repurchase the bond from the bondholder at a specified price prior to its maturity. This option
protects the issuer if market interest rates fall after the issuance. The issuer can redeem the bond
earlier and issue cheap debt in the form of another bond with a lower coupon. This advantage of
early redemption to the issuer is a risk to the investor and callable bonds tend to carry higher
yields than non-callable bonds. Some callable bonds also pay a premium on the principal if they
are redeemed early.
Bonds can also be issued with an option for the investor to require redemption on the bond (put)
before maturity.
2.9.12 Medium-term note (MTN)
An MTN introduces the features of commercial paper to a bond, in the sense that MTNs are
issued continually rather than as a one-off. The maturity of an MTN is longer than one year and
it pays either a fixed-rate or a floating-rate coupon.
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2.10. Importance of Capital Market:
Capital Market is the mirror of economy of any country. Capital Market helps to the industries
and commerce to develop of a country. In this regard the importance of Capital Market is
massive. To make a country economically strong and dynamic there is no alternative of Capital
Market. The importance of Capital Market is shown in the following figure:
Formation of Capital
Inspiring Savings
Mobility of Resources
Helps in Industrialization
Improving Living Standard

Strong Economic Base
Safety of Investment
Proper Utilization of Saving
i. Formation of capital:
To form the capital for industries, Capital Market plays the key role. Through banks
and other financial institutions help to form capital but among them Capital Market is
the vital for collecting long term huge capital.
ii. Inspiring savings:

Capital Market inspires individuals for reducing current consumption and inspires to
increase savings.
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iii. Mobility of resources:
Capital Market makes economy dynamic by helping in proper mobilization of
resources from household to companies. Mobilization of resources is highly required
for any country’s economic development.
iv. Helping in industrialization:

Capital Market provides the required capital for the industries. The companies can
easily collect necessary amount of capital by issuing shares or selling debentures in the
Capital Market.
v. Improving living standard:

Capital Market creates an attractive investment sectors to the mess people. One can
gain easily by investing his saving in markets.
vi. Strong economy base:
Capital Market helps industrialization through mobilization of resources. Thus it
makes the economy strong.
vii. Safety of investment:

Capital Market secures the investment. Stock exchange maintains rules and
regulations to guard the market from fraudulence.
viii. Proper utilization of savings:

Capital Market helps the proper utilization of savings of general people. It brings the
savings and form capital for the companies, thus utilizes property and savings. Capital
Market helps both the investors and the companies for the mutual benefits. It deals
with great importance to the development of economy of a country.
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2.11. Rules of listing companies in Capital Market:
Only the member of the stock exchange can transact the shares in market. So, a company willing
to transact in a stock exchange must be member of the stock exchange following the procedures
prescribed by the concerned stock exchange.
To be member, at first it is require to apply to the stock exchange by the form provided by the
stock exchange. With the application the following documents must be submitted to the authority
of stock exchange. The documents to be attached with the application form are as follows:
1. Certificate of Incorporation given by the register of Joint Stock Company.

2. Certificate of Commencement.
3. Memorandum of Association and Articles of Association.
4. Copy of Prospectus.
5. Activities and potentialities of the company.
6. Copy of agreement with underwriter and jobber.
7. Copy of any agreement with management agent, board of directors, sales agent, and
others.
8. Copy of at least three years of balance sheet and other accounts for old companies.
9. Copy of agreement with financial institutions.
10. Statement of dividend and bonus systems.
11. Proper address of directors and the amount of shares bought by them.
12. Description of shares and debentures application form.
2.12. Rules of Buying and Selling in Capital Market:

To buy or sell financial instruments in a stock exchange, there are some common rules and
regulations he/she has to maintain. The rules are almost applicable for all approaches whether it
is call-over or automated online approach. The general rules regarding buying and selling in
stock exchange are as follows:
1. At first one has to open B/O account for applying in the Capital Market.
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2. Then he has to contact with brokers, because individuals are not permitted to transact
rather he has to transact through brokers. Brokers are representative of both companies
and investors.
3. Then the broker will communicate with jobber who trade independently in their own
names. Brokers are bridge between jobbers and investors.
4. In this stage the brokers on behalf of the buyers or sellers parties, bargain on the price of
both buying and selling. At which price the broker and jobber agree, the transaction will
be made and the brokers get commission on the basis of price quotation. And the jobber
enjoy profit even suffer loss.
5. When the jobber and broker agree, they enter into a contract where the names of the
parties, address, date, share price, description of shares, date of payment etc are
mentioned.
6. If the transaction is in cash, it can be settled within 24 hours but even four days also can
be taken. Four days may take for the acts which are as follows:
 Day-1: Fixing the payment time,
 Day-2: The broker inform the jobber with the name and address of real buyer
and seller,
 Day-3: Documentation of requirement for shares and debentures,
 Day-4: Payment and transfer of shares.

These are the rules and regulations of trading in a stock exchange particularly in Bangladesh.
2.13. Stock exchange:

Stock exchange is a market where share, debenture, bond etc are traded. Stock exchange is an
organization, and specific location where buyers and sellers, sell and buy shares and bonds of
public limited company. Only the members of stock exchange are allowed to trade in stock
exchange.
According to Dr. Harold:
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“Stock exchange is an organized financial market, where stocks and debentures of public
limited companied are bought and sold.”
According to Y. K. Bhushan:
“The stock exchange is an organized market for purchase and selling of listed industrial and
financial securities.”
Stock exchange is a market but it is not necessary to present in body at the market to transact. So,
we can say that stock exchange is an organization where listed public limited company,
government, organization, specialized organization buy and sell their shares, debentures, bonds,
securities etc in the specific manner.
2.14. Features of stock exchange:

Being an organized market, stock exchange has some features. Some of the features of stock
exchange are as follows:
2.14.1 Formation and Management:
Stock exchanges are generally limited company. The elected shareholders manage the stock
exchange. Besides, government can form a stock exchange. Though government establishes a
stock exchange, it also forms a regulatory authority for this purpose.
2.14.1.1 Organized market:
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Stock exchange is an organized market located in a lace. Stock exchange has specific authority to
regulate the market. There are some specific rules and regulation regarding Capital Market.
2.14.1.2 Secondary market:
Stock exchange is the secondary market for the financial instruments. In stock exchange shares,
bonds, securities are exchanged as products.
2.14.1.3 Fluctuations of price:
In the stock exchange price of the products are fluctuate which depend on the demand and
supply. It is an open market where price mechanism acts for determining price for such
fundamental instruments.
2.14.1.4 Certain rules and regulations:
Every stock exchange has certain rules and regulations for performing transactions.
2.14.1.5 Specific location:
Stock exchanges are located in certain place. In that place official activities are performed. But it
is not mandatory to go to the place to buy or sell securities.
2.14.1.6 Membership:
To be a member of a stock exchange one must have to buy shares. For this he/she has to pay
certain fees. Besides this he/she has to sign an agreement to follow the rules and regulations of
the stock exchange.
2.14.1.7 Transaction through brokers:
In Capital Market no individual is permitted to transact directly. One must have to do it through
the brokers on stock exchange.
2.14.1.8 Nature of transaction:
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Transaction in stock exchange may be in cash or in credit.
2.14.1.9 Proper authority:
Stock exchanges are owned by the general stockholders, but proper authority regulates the stock
exchange.
2.14.1.10 No separate entity:
Though stock exchanges are established as public limited company but no transaction is made in
the name of the Capital Market. Rather the members of the Capital Market perform transaction in
their own name.
2.14.1.11 Board of directors:
Every stock exchange has its board of directors elected by the shareholders. Board of directors is
liable to the shareholders for their activities.
2.14.1.12 Time limit of transactions:
In a stock exchange, time is limited for completing a transaction. Within the certain time period,
a transaction must be completed.
Chapter- Three
PRACTICAL ASPECTS
(Money and Capital Market in
Bangladesh)
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Chapter Three: Practical Aspects
3.1. Money Market in Bangladesh:
The money market of Bangladesh reached its present phase through a series of changes and
evolution. Initially, after liberation, money market was the major constituent part of the financial
market of the country. The growth and evolution of money market in the country took place
during the period from 1971 to the early eighties under various sets of interventionist rules and
regulations of the government and as such it could hardly reflect the actual market conditions.
Money market is the center of dealing in short term monetary assets like bill of exchange, short
term govt. securities and other short-term loans. It basically refers to a section of the financial
market where financial instruments with high liquidity and short-term maturities are traded.
Bangladesh has a very active money market, where a host of instruments are traded. The money
market in Bangladesh is in its transitional stage. The various constituent parts of it are in the
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process of formation, while continuous efforts are being made to develop appropriate and
adequate instruments to be traded in the market. However, the short-term credit market of the
banking sector experienced a tremendous growth since liberation.
3.1.1. Characteristics of Money Market

The unorganized sector of Bangladesh’s money market consists of a wide range of non-banking
financial institutions. Such institutions resemble banks very closely and compete with banks in
attracting public deposits. But they are not under the control of the CB. So, their presence
reduces the effectiveness of the central bank’s control over the money market. The main
characteristics of money market of Bangladesh are as follows.
3.1.1.1 Existence of Unorganized Money Market

The Major defect of the Bangladeshi money Market has always been the existence of the
indigenous bankers who do not distinguish between short-term and long-term finance. During
the last decades, there is a whole lot of non-banking financial companies who raise funds from
Chapter Three:
the general public but who are generally outside the control and supervision Practical
of central Aspects
bank of
Bangladesh.
3.1.1.2 Absence of Integration

An important defect of the Indian money market at one time was the division of the money
market into several segments or sections, loosely connected to each other. Each part of the
money market carry on a particular type of banking business or provide a specific type of
financial service. Each financial institution acts independently.
3.1.1.3. Diversity in Money Rates of Interest

Another defect of the Bangladeshi money market related to the existence of too many rates of
interest – the borrowing rate of the Government, the deposit and lending rates of commercial
banks, deposit and lending rates of cooperative banks, etc. The basic reason for the existence of
so many rates of interest simultaneously is the immobility of funds from one section of the
money market to another.
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3.1.1.4. Seasonal Stringency of Money
A very striking characteristic of the Bangladeshi money market is the seasonal monetary
stringency and high rates of interest during a part of the year.
3.1.1.5. Absence of the market

The existence of an organized bill market is absolutely essential for linking various credit
agreements with the central bank in an effective manner. No doubt there is a Treasury bill market
in Bangladesh. But the commercial bill market has not been fully developed.
3.1.1.6. Limited Instruments

It is in fact a defect of the Bangladeshi money market. In our money market the supply of
various instruments such as the Treasury Bills, Commercial Bills, Certificate of Deposits,
Commercial Papers, etc. is very limited. In order to meet the varied requirements of borrowers
and lenders, It is necessary to develop numerous instruments.
3.1.1.7. Volatile call money market

Chapter
The inter-bank call money market is the market for short-term funds, Three:
known PracticalatAspects
as ‘money call
and short notice’. Two components of this market are the call market or overnight market and
short notice market. The borrowing rate in this market is known as the call money rate. This rate
is determined by the market forces, that is, by the forces of demand and supply. The demand or
short-term funds originates from all types of banks—nationalized, private and foreign.
3.2. Composition of Money Market

The structure of money market comprises credit instruments, components of sub markets and
institutions. On the other hand, money market of Bangladesh is divided into organized and
unorganized segments.
3.2.1. Organized market 3.2.2. Unorganized market

Organized market is that part which comes Unorganized market is old Indigenous market
under the regulatory purview of Bangladesh mainly made of
Bank. The nature of the money market 1. Indigenous bankers
transactions is such that they are large in 2. Money lenders
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amount and high in volume. Thus, the entire 3. Individuals
market is dominated by small number of 4. NBFIs
large players. The key players in the 5. Friends
organized money market include:
1. Central Bank
2. Commercial Banks, Cooperative Banks,
Finance, Industrial and Service companies.
3. Financial Institutions, Mutual Funds and
certain specific entities
4. Discount Houses and Bill Brokers
5. Acceptance Houses
6. Large Transactions and Telecommunication
Network.
7. Firms, Companies, Corporate Bodies,
Trusts.
3.3. Types of Money Market Instruments

Money Market Instruments (MMI) provide the tools by which one can operate in the money
market. These instruments tend to have lower returns than higher-risk investments, but are much
safer due to being backed by the resources and reputation of an institution, state, or sovereign.
The most common money market instruments are Treasury Bills, Certificate of Deposits,
Commercial Papers, Repurchase Agreements and Banker's Acceptance.
3.3.1. Treasury Bills (T-Bills)

Treasury Bills are one of the safest money market instruments as they are issued by Central
Government. They are zero-risk instruments, and hence returns are not that attractive. T-Bills are
circulated by both primary as well as the secondary markets. They come with the maturities of 3-
month, 6-month and 1-year.
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3.3.2. Certificate of Deposits (CDs)
Certificate of Deposit is like a promissory note issued by a bank in form of a certificate entitling
the bearer to receive interest. It is similar to bank term deposit account. The certificate bears the
maturity date, fixed rate of interest and the value. These certificates are available in the tenure of
3 months to 5 years. The returns on certificate of deposits are higher than T-Bills because they
carry higher level of risk.
3.3.3. Commercial Papers (CPs)

Commercial Paper is the short term unsecured promissory note issued by corporates and
financial institutions at a discounted value on face value.
They come with fixed maturity period ranging from 1 day to 270 days. These are issued for the
purpose of financing of accounts receivables, inventories and meeting short term liabilities.
3.3.4. Banker's Acceptance

Banker's Acceptance is like a short-term investment plan created by non-financial firm, backed
by a guarantee from the bank. It's like a bill of exchange stating a buyer's promise to pay to the
seller a certain specified amount at a certain date.
And, the bank guarantees that the buyer will pay the seller at a future date. Firm with strong
credit rating can draw such bill. These securities come with the maturities between 30 and 180
days and the most common term for these instruments is 90 days. Companies use these
negotiable time drafts to finance imports, exports and other trade.
3.3.5. Repurchase Agreements (Repo)

Repurchase Agreements which are also called as Repo or Reverse Repo are short term loans that
buyers and sellers agree upon for selling and repurchasing. Repo or Reverse Repo transactions
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can be done only between the parties approved by central bank and allowed only between central
bank-approved securities such as state and central government securities, T-Bills, PSU bonds and
corporate bonds.
3.4. Draw backs of Money Market Instruments

Though the Bangladeshi money market is considered as the advanced money market among
developing countries, it still suffers from many drawbacks or defects. These defects limit the
efficiency of our market.
3.4.1 Absence of Integration

The money market of Bangladesh is broadly divided into the Organized and Unorganized
Sectors. The former comprises the legal financial institutions backed by the central bank. The
unorganized statement of it includes various institutions such as indigenous bankers, village
money lenders, traders, etc. There is lack of proper integration between these two segments.
3.4.2 Multiple rate of interest

In the Bangladeshi money market, especially the banks, there exists too many rates of interests.
These rates vary for lending, borrowing, government activities, etc. Many rates of interests create
confusion among the investors.
3.4.3 Insufficient Funds or Resources
The economy with its seasonal structure faces frequent shortage of financial recourse. Lower
income, lower savings, and lack of banking habits among people are some of the reasons for it.
3.4.4 Shortage of Investment Instruments
In Bangladesh, various investment instruments such as Treasury Bills, Commercial Bills,
Certificate of Deposits, Commercial Papers, etc. are used. But taking into account the size of the
population and market these instruments are inadequate.
3.4.5 Shortage of Commercial Bill
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In our country, as many banks keep large funds for liquidity purpose, the use of the commercial
bills is very limited. Similarly, since a large number of transactions are preferred in the cash form
the scope for commercial bills are limited.
3.4.6 Lack of Organized Banking System
In Bangladesh, even though we have a big network of commercial banks, still the banking
system suffers from major weaknesses. The absence of the organized banking system is major
problem for Indian money market.
3.4.7 Less number of Dealers
There are poor number of dealers in the short-term assets who can act as mediators between the
government and the banking system. The less number of dealers leads tc the slow contact
between the end lender and end borrowers.
3.4.8 Importance of Money Market in Bangladesh Economy
A well-developed money market is essential for a modern economy. Though, historically, money
market has developed as a result of industrial and commercial progress, it also has important role
to play in the process of industrialization and economic development of a country. Importance of
a developed money market and its various functions are discussed below:
3.4.8.1 Financing Trade

Money Market plays crucial role in financing both internal as well as international trade.
Commercial finance is made available to the traders through bills of exchange, which are
discounted by the bill market. The acceptance houses and discount markets help in financing
foreign trade.
3.4.8.2 Financing Industry
Money market contributes to the growth of industries in two ways:
(a) Money market helps the industries in securing short-term loans to meet their working capital
requirements through the system of finance bills, commercial papers, etc.
(b) Industries generally need long-term loans, which are provided in the capital market.
However, capital market depends upon the nature of and the conditions in the money market.
The short-term interest rates of the money market influence the long-term interest rates of the
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capital market. Thus, money market indirectly helps the industries through its link with and
influence on long-term capital market.
3.4.8.3 Profitable Investment

Money market enables the commercial banks to use their excess reserves in profitable
investment. The main objective of the commercial banks is to earn income from its reserves as
well as maintain liquidity to meet the uncertain cash demand of the depositors. In the money
market, the excess reserves of the commercial banks are invested in near-money assets (e.g.
short-term bills of exchange) which are highly liquid and can be easily converted into cash.
Thus, the commercial banks earn profits without losing liquidity.
3.4.8.4 Self-Sufficiency of Commercial Bank

Developed money market helps the commercial banks to become self-sufficient. In the situation
of emergency, when the commercial banks have scarcity of funds, they need not approach the
central bank and borrow at a higher interest rate. On the other hand, they can meet their
requirements by recalling their old short-run loans from the money market.
3.4.8.5 Help to Central Bank

Though the central bank can function and influence the banking system in the absence of a
money market, the existence of a developed money market smoothens the functioning and
increases the efficiency of the central bank.
Money market helps the central bank in two ways:
(a) The short-run interest rates of the money market serves as an indicator of the monetary and
banking conditions in the country and, in this way, guide the central bank to adopt an appropriate
banking policy,
(b) The sensitive and integrated money market helps the central bank to secure quick and
widespread influence on the sub-markets, and thus achieve effective implementation of its
policy.
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3.8.4.6 Recommendations
Money market in Bangladesh still in vulnerable position although considerable number of
development has done in the last decades. The following recommendation can make our money
market more active and smart.
3.5. Bangladesh Capital Market:

Bangladesh capital market is one of the smallest in Asia but the third largest in the south Asia
region. It has two full-fledged automated stock exchanges namely Dhaka Stock Exchange (DSE)
and Chittagong Stock Exchange (CSE) and an over-the counter exchange operated by CSE. It
also consists of a dedicated regulator, the Securities and Exchange Commission (SEC), since, it
implements rules and regulations, monitors their implications to operate and develop the capital
market. It consists of Central Depository Bangladesh Limited (CDBL), the only Central
Depository in Bangladesh that provides facilities for the settlement of transactions of
dematerialized securities in CSE and DSE.
The consecutive outstanding performance of Bangladesh stock market in recent years before the
crash lured millions of investors to the stock market to invest their little savings. Before the stock
market crash the market had become a route of easy money for too many new individual
investors. That is why millions of fresh investors invest their small saving in the market during
this period.
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This table shown that the sector wise performance of DSE during October-December 2017 of
Banks, FIs, Insurance Com, mutual Funds, Govt. T. Bonds and corporate bond, debentures,
others etc. The turnover of these sectors is 5.37, 1.18, 0.36, 0.55, 4.69. The banking sector has
more turnovers and which is 5.37.
3.5.1. History of Bangladesh stock market:
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The journey of Bangladesh stock market started on April 28, 1954 as East Pakistan Stock
Exchange Association Ltd. At that time Bangladesh used to be ruled by Pakistan and the name of
the country was East Pakistan.
But trading on this market started in 1956 with a total paid up capital of Taka 4 billion and 196
securities were listed on this market. The exchange was renamed on June 23, 1962 as Dhaka
Stock Exchange (DSE) Limited. Trading on Dhaka Stock Exchange was suspended from 1971 to
1976 because of liberation war and its post-independence weak economy. Then the trading was
resumed in 1976 with 9 listed securities having a total paid up capital of Taka 137.52 million.
By 1987, the number of listed companies in DSE increased up to 92. But high development of
the market is noticeable in the 1990s comparing with any other time since its establishment.
3.5.2. Dhaka Stock Exchange (DSE)

Dhaka Stock Exchange is the first & biggest stock exchange of Chapter Three:
the country. ThePractical Aspects
operation of
Dhaka Stock Exchange started on May 14, 1964 after renaming East Pakistan Stock Exchange
Limited.
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Dhaka Stock Exchange (DSE) is registered as a Public Limited Company and its activities are
regulated by its Articles of Association rules & regulations and bye-laws along with the
Securities and Exchange Ordinance - 1969, Companies Act - 1994 & Securities & Exchange
Commission Act - 1993.
In the beginning DSE was a physical stock exchange and used to trade in the open out-cry
system. After that to secure smooth, timeliness & effective operation on the market, DSE uses
automated trading system. The system was installed on 10th August, 1998 and was upgraded
time to time. The latest upgrading was done on 21st December, 2008.
There are 238 members and total 507 listed securities in Dhaka Stock Exchange. The working
days of DSE is 5 days in a week without Saturday, Sunday public holidays & other government
holidays. The trading time is from 11:00 am to 15:00 pm (local time). Investment options for an
investor in this market are ordinary share, Debenture, Bond & Mutual funds.
3.5.3. Functions of DSE

The major functions are:
 Listing of Companies (As per Listing Regulations).
 Providing the screen based automated trading of listed Securities.
 Settlement of trading (As per Settlement of Transaction Regulations).
 Gifting of share / granting approval to the transaction/transfer of share outside the trading
system of the exchange (As per Listing Regulations 42).
 Market Administration & Control.
 Market Surveillance.
 Publication of Monthly Review.
 Monitoring the activities of listed companies (As per Listing Regulations).
 Investors’ grievance Cell (Disposal of complaint by laws 1997).
 Investors Protection Fund (As per investor protection fund Regulations 1999).
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 Announcement of Price sensitive or other information about listed com-pansies through

online.
3.5.4. Chittagong Stock Exchange (CSE)
Chittagong Stock Exchange is the 2nd stock exchange of Bangladesh. It is said that CSE is the
pioneer of the modern capital market of the country as it introduces modern technology &
sophisticated logistic support. It was incorporated as a self regulated non-profit organization on
1st April, 1995 and formally opened on November 4, 1995. It started its trading through cry-out
system. Then Chittagong Stock Exchange started first automated trading bourse of the country.
CSE started its automated trading on 2nd June, 1998 and internet trading service on 30th May,
2004.
The trading time of CSE is between 11:00 am to 15:00 pm. The working days & holidays of CSE
are same as like as DSE. CSE consists of 25 members of whom 12 are elected through election
of CSE members, 12 members are elected from different major economic & social arena of
Bangladesh and CEO is nominated and appointed by its own board but the approval of SEC
mandatory.
Now CSE has 147 members and 238 of listed securities. There are four different markets in CSE
too which are public, Spot, Block & Odd Lot market. Trading is done through all these four
markets. A, B, N, G and Z these are the 5 categories of company listed in CSE and it is
mentionable that in G category there is not any company.
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3.6. Structure of Bangladesh Stock Market
3.6.1. Primary Market:

Initial Public Offerings (IPOs), new share issuance of a company comes through primary market.
Companies can issue new securities after getting permission from the market regulators.
3.6.2. Secondary Market:
Secondary market deals with existing securities or previously issued securities. Securities can be
sold or bought from this market. In a stock exchange most of the trading figures comes from the
secondary market. This market is also divided according to its different trading characteristics
.
3.6.2.1. Public Market: Instruments are traded on this market in normal volume which is
called lot share.
3.6.2.2. Spot Market: Trading is done in normal volume under corporate actions and
must be settled in 24 hours.
3.6.2.3. Block Market: In this market bulk volume of instruments are trades through pick
& fill basis.
3.6.2.4. Odd lot Market: Odd lot refers to a quantity of shares that is less than market
lot. Odd lots of all instruments are traded through pick & fills in this market.
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3.7. Security & Exchange Commission (SEC)

The aims of forming Security Exchange Commission are to protect investor`s interest,
improvement of securities markets, appropriate issuance of securities and proper guiding of
securities laws. The most important organizations and intermediaries under supervision of SEC
are DSE, CSE, CDBL, stock brokers, merchant banks and asset management companies. The
main functions of SEC are following:
 Registering and regulating the business operation of DSE, CSE, stock brokers, merchant
banks, underwriters, share transfer agents, portfolio managers and other intermediaries.
 Developing investor`s education, providing training for intermediaries, executing market

research and publishing those.
 controlling every authorized self regulatory organizations too
 Inspecting and controlling fraudulent and unfair trading in security markets
 Auditing and investigating of any intermediaries or stock exchanges
 Collective investment scheme registering & controlling
3.7.1. Central Depository Bangladesh Limited (CDBL):

The establishment of CDBL added value to the stock market of Bangladesh and attracted more
investors especially foreigners. Before the establishment of CDBL process of transferring and
delivering ownership was too lengthy and risky. After implementing automated trading system in
DSE & CSE and introducing central depository system, the stock market of Bangladesh became
more effective and credible to the investors.
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3.8. Criteria for public offer/listing in Capital Market in

Bangladesh:
3.8.1 General requirements:
An issuer may make an application for public offer of its securities, if -
 It offers an amount of at least equivalent to 10% of its paid-up capital (including intended
offer) or Tk. 15 crore at par value, whichever is higher;
 It has minimum existing paid up capital of Tk. 15 crore;
 It has not made any material change including raising of paid-up capital after the date of
audited financial statements as included in the prospectus;
 The issue manager is in no way connected with the issuer not does hold any of its
securities;
 It has prepared its financial statements in accordance with the requirements of the
Securities and Exchange Rules, 1987, the provisions of IFRS /IAS as adopted in
Bangladesh and audited the same as per Bangladesh Standards on Auditing (BSA) as
well as the Companies Act, 1994 and other applicable legal requirements;
3.8.2 Additional requirements for Fixed Price Method:
 If it has been in commercial operation at least for immediate last 3 (three) years, it has
positive net profit after tax and net operating cash flow at least for immediate preceding 2
(two) financial years; if it has been in commercial operation for a period less than 3
(three) years, it has positive net profit after tax and net operating cash flow at least for the
latest financial year; if it has not started its commercial operation or not completed any
financial period yet, it has positive projected net profit after tax and net operating cash
flow; and
3.8.3 Additional requirements for Book Building Method:
 It has been in commercial operation at least for immediate last 3 (three) years;
 It has made net profit after tax at least for immediate preceding 2 (two) financial years;
45 | P a g e
 It has positive net operating cash flow at least for immediate preceding 2 (two) financial
years;
 It has appointed separate persons as issue manager and registrar to the issue for managing
the issue;
3.8.4 Direct Listing:
Salient Prerequisites of an issuer for becoming eligible for direct listing:
Shall have minimum paid up capital of Tk. 300 (three hundred) million
Shall have no accumulated loss
Shall be in commercial operation for at least immediate last 5 (five) years
Shall have profit in 3 (three) years out of the immediate last 5 (five) completed
accounting/financial years with steady growth pattern;
Is regular in holding annual general meeting (AGM).
Has not raised capital (excluding bonus issue) within preceding 2 (two) years
Has not issued the same class of securities in any manner other than bonus issue within
the preceding 2 (two) years of submitting application of listing
Shall have positive net current assets (Current Assets less Current Liabilities) at the end
of immediate preceding 3 (three) accounting/financial years
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Chapter- Four
Analysis & Findings
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Chapter Four: Analysis & Findings
4.1. Findings of the Study
a) In our country, as many banks keep large funds for liquidity purpose, the use of the
commercial bills is very limited. Similarly, since a large number of transactions are
preferred in the cash from the scope for commercial bills are limited.
b) There are poor number of dealers in the short-term assets who can act as mediators
between the government and the banking system. The less number of dealers leads tc the
slow contact between the end lender and end borrowers.
c) A well-developed money market is essential for a modern economy. Though, historically,

money market has developed as a result of industrial and commercial progress, it also has
important role to play in the process of industrialization and economic development of a
country.
d) Growth of mutual fund in Bangladesh has been slow. Only recently there has been a rush
for new funds. Many banks and financial institutions are in the queue with proposals for
their funds. Mutual fund is often a misunderstood subject in Bangladesh. Many investors
do not understand the difference between mutual fund shares and other company shares.
Mutual fund share is not the share of a company. It is a fund under a trust.
e) Investment in mutual fund is ideal for investors who do not want to take risk because the
fund is managed professionally and the collective investment is diversified. Mutual fund
share price can also fluctuate heavily and be subject to wild speculation. As a result the
safe investment tool often becomes a risky area.
f) It has been observed that Z category shares offering more capital gain than A category
even these are very much risky. This attracts new investors and they invest in Z category
share which increase the risk of loss.
g) SEC is revisiting IPO and rights issue rules and drafting direct listing rules. The
objectives are to reduce issue cost, simplify procedural requirements and shorten the time
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gap between submission of an application to and consent by SEC. The Securities and
Exchange Commission (SEC) should formulated a revised guideline on book building
method because through this system investors are paying higher premium on the face
value that actually have bad reflection on the market.
4.2. SWOT Analysis of Money and Capital Market in Bangladesh:
4.2.1 Strengths
 Money Market Instruments (MMI) provide the tools by which one can operate in the
money market. These instruments tend to have lower returns than higher-risk
investments, but are much safer due to being backed by the resources and reputation of an
institution, state, or sovereign.
 Many potential investors now moving toward it again and invest their savings in the stock
market.
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 The stock market is the engine of growth for an economy, and performs a critical role in
acting as an intermediary between savers and companies seeking additional financing for
business expansion.
 While lending by commercial banks provides valuable initial support for corporate
growth, a developed stock market is an important pre-requisite for moving into a more
mature growth phase with more sophisticated conglomerates.
 Treasury Bills are one of the safest money market instruments as they are issued by
Central Government. They are zero-risk instruments, and hence returns are not that
attractive.
 T-Bills are circulated by both primary as well as the secondary markets. They come with
the maturities of 3-month, 6-month and 1-year.
4.2.2 Weaknesses
 The DSE & CSE index calculations being incorrect. If we look at the issues individually
like the DSE & CSE Index, the syndicates, comprising of stock exchange members and
the SEC, we can find the common link, which is the stock exchanges and the SEC.
 The money market of Bangladesh is broadly divided into the Organized and Unorganized
Sectors. The former comprises the legal financial institutions backed by the central bank.
 The unorganized statement of it includes various institutions such as indigenous bankers,

village money lenders, traders, etc. There is lack of proper integration between these two
segments.
 The focus should be on the privatization of state owned enterprises through public
offerings in the bourses. The market has to reach such a stage of development that
companies will take it as a serious alternative to bank financing.
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 Investors are perhaps depending more on speculative analysis, resulting in volatility in

the market, as opposed to fundamental analysis, which could attract more stable long
term investors who are sure about their investment tenure and expectations.
 In the Bangladeshi money market, especially the banks, there exist too many rates of
interests. These rates vary for lending, borrowing, government activities, etc. Many rates
of interests create confusion among the investors.
4.2.3 Opportunities
 Money market in Bangladesh still in vulnerable position although considerable number of

development has done in the last decades. The following recommendation can make our
money market more active and smart.
 Recently, Government can improve its guidelines for stock market. At present there are
more than 3600 garments in Bangladesh with strong financial background. These
garments industries should be encouraged to be listed. Innovative financial products and
hybrid securities needs to be introduced to enrich our stock market.
 Less time-consuming compliances of numerous formalities, low cost of initial public

equity offerings, elimination of double taxation will be helpful to equity market
improvement. The corporate tax bracket can be lowered in order to encourage sponsors to
list their companies in the exchanges.
 We can also introduce Future and Option Market and help our already existing bond
market to be more vibrant leaving the investors with more instruments.
 Certificate of Deposit is like a promissory note issued by a bank in form of a certificate

entitling the bearer to receive interest. It is similar to bank term deposit account. The
returns on certificate of deposits are higher than T-Bills because they carry higher level of
risk.
51 | P a g e
4.2.4 Threats
 In Bangladesh, various investment instruments such as Treasury Bills, Commercial Bills,

Certificate of Deposits, Commercial Papers, etc. are used. But taking into account the
size of the population and market these instruments are inadequate.
 Many of the stocks are overpriced and this is a serious risk factor for the inexperienced
investors. Entry of new companies in the market can help reduce gap between demand
and supply and help bring stability in the market.
 New companies need to be encouraged to come to the bourse through market friendly
policy. But recent policy interventions do not seem to be moving towards that end.
 Immediate entry of at least two or three large companies could be extremely helpful for a
balanced growth of the market.
 It has been observed that the share values of some profitable companies has been
increased fictitiously some items that hampers the smooth operation of Stock market..
52 | P a g e
Chapter- Five
Conclusionary Aspects
53 | P a g e
Chapter Five: Conclusionary Aspects
5.1 Recommendations:
i. Money market enables the commercial banks to use their excess reserves in profitable
investment. The main objective of the commercial banks is to earn income from its
reserves as well as maintain liquidity to meet the uncertain cash demand of the
depositors.
ii. SEC should initiate awareness, educational and promotional programs through
institutional training for a vibrant market with active presence of issuers and investors.
iii. Developed money market helps the commercial banks to become self-sufficient. In the
situation of emergency, when the commercial banks have scarcity of funds, they need not
approach the central bank and borrow at a higher interest rate.
iv. Stock market cannot be functional without investors. So the activities of investors have
high influence on market movement. The decisions regarding the market should be taken
considering behavioral psychology of the investors. Finally there should be a proper
coordination between all market players -SEC, DSE, CSE, merchant banks and
government so that stock market can play a vital role efficiently for the economic
development of the country.
v. SEC intends to extend the requirement to other market intermediaries laying down the
qualifications of the concerned officials and specifying the issues to be addressed in
implementing internal compliance procedures.
vi. Capital gains tax will help government to generate additional revenue and also drive
traders away from the market which will eventually help stabilize the market in the long
run.
54 | P a g e
Chapter Five: Conclusionary Aspects
5.2 Conclusion
All financial institutions of the country were nationalized after liberation. The growth and
evolution of money market in the country took place during the period from 1971 to the early
eighties under various sets of interventionist rules and regulations of the government and as such
it could hardly reflect the actual market conditions. However, in this period a vast financial
superstructure with large network of commercial bank branches was established in the country.
Simultaneously, specialized financial institutions under government sector also emerged with the
objective of mobilizing financial resources and channeling them for short, medium and long-
term credit and investments. The market participants had to operate in an environment of
directed lending and loan disbursement goals, and predetermined rates of interest fixed by the
authority. Stock market has been experiencing a bearish trend over the last three months in
Bangladesh. Once DSE general index crossed 8900 landmark and the average daily market
turnover crossed over Tk.20000 million. But recently the drastically fall of stock market DSE
General index touches 5200 point and the average volume is Tk.7000 million. The market
capitalization has been decreasing tremendously down which is now over Tk. 25 billion level.
According to DSE source, the market basically trends to bearish due to inactive participation of
the institutions, which is, 60% of the total trade; 20% of it comes from the foreign investors and
the rest 20% comes from the retail investors as well as the confidence level of general investors
are also decline. This is indeed a very bad sign for the stock market of Bangladesh and we are
also looking to more general, institutional and the foreign participants to overcome this situation.
55 | P a g e
Chapter- Six
Ending Matters
56 | P a g e
Chapter Six: Ending Matters
6.1 References
Books:
 Financial Markets and Institutions, by Jeff Madura

 DSE & CSE Monthly Review, November' 14, December' 14, January' 15,
February' 15 and March' 15.
 Money and capital market by Relly and Brown.
Websites:
 www.bangladeshbank.bd.com
 Securities and Exchange Commission
www.secbd.org/about.htm
 Dhaka Stock Exchange

http://dsebd.org/ilf.php#fnd
http://dsebd .org/recent market information.php
http://dsebd .org/cbul.htm
http ://dsebd.org/ipo archive.php
 Chittagong Stock Exchange

www.cse.org.htm
www.cse.com.bd
 www.wikipedia.com
 www.wikipedia.com/keyterms
 www.investorpedia.com
 www.investopedia.com/keyterms
 www.stockbangladesh.com
 www.bdstock.com http://www.bdstock.com/blogs.php?id=43
57 | P a g e

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Research Report On:

“Money and Capital Market in

Mr. S.M Shoaib,

Subject: Submission of Research Report on “Money and Capital Market in Bangladesh ”

Name: Fahad Uddin

Chapter- Two 2.1. Money Market: 12

Chapter- Three 3.1. Money Market in Bangladesh 31

Chapter- Four 4.1. Findings of the Study 48

Chapter- Six 6.1. References 57

1.1. Background of the Study:

Chapter One: Introductory Aspects

1.2. Objectives of the Study:

1.3 Scope of the study:

1.4 Methodology of the Study:

Methods of collecting Data:

1.3.1. Secondary Data:

1.5 Limitations of the Study:

 Difficulty in accessing data of its internal operations.

2.1. Money Market:

 It is a wholesale market, as the transaction volume is large.

2.3. Participants of Money Market:

2.3.2 State Government:

2.3.3 Public Sector Undertakings:

2.3.4 Scheduled Commercial Banks (SCBs):

2.3.5 Private Sector Companies:

2.3.6 General Insurance Companies:

2.3.7 Life Insurance Companies:

Chapter Two: Theoretical Aspects

2.3.8 Mutual Funds:

2.4. Money Market Instruments

2.5. Functions of Money Market

2.6. Definition of Capital Market:

2.7. Types of Capital Market:

2.7.2 Secondary market

2.7.1 Primary Market:

2.7.1.1 Initial Public Offering:

2.7.1.2 Right offering:

2.7.1.3 Private placement:

2.7.2 Secondary Market:

2.7.2.1 Organized Security Market or Auction Market:

2.7.2.2 Dealer market or over the counter (OTC) exchange:

Chapter Two: Theoretical Aspects

2.9. Capital Market Instruments:

2.9.1.1 Equity shares

2.9.1.2 Common shares

Common shares are characterized by their residual claim and limitedChapter

2.9.1.3 Preferred shares

2.9.2.1 Longer term fixed-income debt markets.

2.9.2.2.1 Domestic, foreign and Eurobonds

2.9.2.2.2 Government bond market

2.9.2.2.3 Corporate bonds

 Short-term notes with a maturity of less than five years.

 Medium-term notes or bonds which have maturities of five to 12 years.

 Long term bonds featuring maturities of more than 12 years.

2.9.3 Different types of bonds/bond structures

2.9.4 Index-linked bonds

2.9.5 Zero-coupon bonds

2.9.7 Perpetual bonds

2.9.8 Convertible bonds

2.9.11 Calls and puts

2.9.12 Medium-term note (MTN)

Improving Living Standard

Proper Utilization of Saving