Venture capital:

Venture capital (VC) is financial capital provided to early-stage, high-potential, growth startup companies. The
venture capital fund earns money by owning equity in the companies it invests in, which usually have a novel
technology or business model in high technology industries, such as biotechnology and IT. The typical venture
capital investment occurs after the seed funding round as the first round of institutional capital to fund growth
(also referred to as Series A round) in the interest of generating a return through an eventual realization event, such
as an IPO or trade sale of the company. Venture capital is a type of private equity.

In addition to angel investing and other seed funding options, venture capital is attractive for new companies with
limited operating history that are too small to raise capital in the public markets and have not reached the point
where they are able to secure a bank loan or complete a debt offering. In exchange for the high risk that venture
capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant
control over company decisions, in addition to a significant portion of the company's ownership (and consequently
value).

Deficit financing:

The method used by a government to finance its budget deficit, that is, to cover the difference between its tax
receipts and its expenditures. The main choices are to issue bonds or to print money.
2. The assumption that a change in government spending or taxes will be financed by a change in the government
budget deficit, rather than by an accommodating additional change in spending or taxes to keep the budget
balanced. Example: a "deficit-financed increase in government purchases."

Money multiplier:
Mathematical relationship between the monetary base and money supply of an economy. It explains the increase
in the amount of cash in circulation generated by the banks' ability to lend money out of their depositors' funds.
When a bank makes a loan, it 'creates' money because the loan becomes a new deposit from which the borrower
can withdraw cash to spend. This money-creating power is based on the fractional reserve system under which
banks are required to keep at hand only a portion (between 10 to 15 percent, typically 12 percent) of the
depositors' funds. The rest may be converted into loans, thereby increasing the available cash by a factor that is a
multiple of the initial deposit.
The money multiplier is the reciprocal of the reserve ratio:
Money Multiplier = 1/R, where R is the Reserve Ratio

Bridge financing:
Financing extended to a person, company, or other entity, using existing assets as collateral in order to acquire
new assets. Bridge financing is usually short-term.

Bridge financing is a method of financing, used to maintain liquidity while waiting for an anticipated and
reasonably expected inflow of cash. Bridge financing is commonly used when the cash flow from a sale of an asset
is expected after the cash outlay for the purchase of an asset.
Bridge financing may also be provided by banks underwriting an offering of bonds. If the banks are unsuccessful
in selling a company's bonds to qualified institutional buyers, they are typically required to buy the bonds from the
issuing company themselves, on terms much less favorable than if they had been successful in finding institutional
buyers and acting as pure intermediaries.
There are two types of bridging finance. Closed bridging and Open Bridging.
Closed bridging finance is where you have a date for the exit of the bridging finance and are sure that the bridging
finance can be repaid on that date. This is less risky for the lender and thus the interest rate charged are lower.
Open bridging is higher risk for the lender. This is where the borrower does not have an exact date for the bridging
finance exit and may be looking for a buyer of the property or land.

velocity of money:

  Rate at which money circulates, changes hands, or turns over in an economy in a given period. Higher velocity
means the same quantity of money is used for a greater number of transactions and is related to the demand for
money. It is measured as the ratio of GNP to the given stock of money. Also called velocity of circulation. Velocity
is important for measuring the rate at which money in circulation is used for purchasing goods and services. This
helps investors gauge how robust the economy is, and is a key input in the determination of an economy's
inflation calculation. Economies that exhibit a higher velocity of money relative to others tend to be further along
in the business cycle and should have a higher rate of inflation, all things held constant.

Risk-weighted asset:

The minimum amount of capital that is required within banks and other institutions, based on a percentage of the
assets, weighted by risk.

Risk-weighted asset is a bank's assets or off-balance-sheet exposures, weighted according to risk.[1] This sort of
asset calculation is used in determining the capital requirement or Capital Adequacy Ratio (CAR) for a financial
institution

 it provides an easier approach to compare banks across different geographies

 off-balance-sheet exposures can be easily included in capital adequacy calculations
 banks are not deterred from carrying low risk liquid assets in their books
  Corporate governance principles for banks:

The Basel Committee's revised principles on corporate governance at banks build on the Committee's 2010
document Principles for enhancing corporate governance. Specifically, the revised principles:

 strengthen the guidance on risk governance, including the risk management roles played by business
units, risk management teams, and internal audit and control functions (the three lines of defence) and
the importance of a sound risk culture to drive risk management within a bank;
 expand the guidance on the role of the board of directors in overseeing the implementation of effective
risk management systems;
 emphasise the importance of the board's collective competence as well as the obligation on individual
board members to dedicate sufficient time to their mandates and to remain current on developments in
banking;
 provide guidance for bank supervisors in evaluating the processes used by banks to select board
members and senior management; and
 recognise that compensation systems form a key component of the governance and incentive structure
through which the board and senior management of a bank convey acceptable risk-taking behaviour
and reinforce the bank's operating and risk culture.

Effective corporate governance is critical to the proper functioning of the banking sector and the economy as a
whole. While there is no single approach to good corporate governance, the Committee's revised principles
provide a framework within which banks and supervisors should operate to achieve robust and transparent risk
management and decision-making and, in doing so, promote public confidence and uphold the safety and
soundness of the banking system

BANGLADESH BANK AUTONOMY:

Bangladesh Bank was established under the supervision of the Ministry of Finance after independence
of Bangladesh with the Bangladesh Bank Order, 1972 to control the monetary and credit system of
Bangladesh. The key objectives of the bank wasto stabilizing domestic monetary value and maintaining
a competitive external pervalue of Bangladesh taka towards fostering growth and development of the
country’sproductive resources in the best nationalinterest. The bank’s functions as mentioned in the
Bangladesh Bank Order 1972 and the Bangladesh Bank (Amendment) Act 2003 are: to formulate and
implement monetary policy and to formulate and implement intervention policies in the foreign exchange
markets; give advice to the government on the interaction of monetary policy with fiscal and exchange
rate policy; hold and manage the official foreign reserve of Bangladesh to promote, regulate and ensure
a secure and efficient payment system, including the issue of bank notes. BangladeshBank also
regulates and supervises other banking companies and financial institutions in the country. However
recently there are lots of debates on ‘the full autonomy ofBangladesh Bank’. This autonomy mainly
means both the administrative and operational autonomy.

Central bank autonomy is a debatable issue especially in the developing country like Bangladesh. Since
it’s introduction Bangladesh Bank- the central bank of the country is working under the tight supervision
and control of the Ministry of Finance. It is very common that while a central bank work under the control
of such political parties it cannot work properly. Because mission, objectives and interest of these
political parties can not be same as the interest of the central bank. Therefore government always tries
to influence over the monetary policy of bank to gain only short-run political benefits. Whereas in the
apex of the financial system, central bank should enjoy full autonomy to play roles for gaining long-term
economic development through formulating and implementing appropriate monetary policy and
supervising the financial institutions. Further it also may need to supervise the financial agenda of
the party in power and accordingly advice the government too. Though recently National Parliament of
Bangladesh has sanctioned some autonomy to the Bank, however government still have control over
the Bank for the determination of interest rate, government borrowing, appointment of governor and the
bank officials, right of issuing bank’s own instruments etc. Consequently Bangladesh Bank is enjoying
only a partial or limited autonomy.

PRIMARY DEALERS:
A primary dealer is a firm that buys government securities directly from a government, with the intention
of reselling them to others, thus acting as a market maker of government securities. The government
may regulate the behavior and numbers of its primary dealers and impose conditions of entry.

1. To enhance liquidity and depth in the securities market by facilitating price discovery
and turnover, encouraging voluntary holding of government securities amongst a wide
investor base;
2.To develop under writing and market making capabilities for government securities
amongst the market participants;
3. To facilitate efficient liquidity management, and open market operations of monetary
policy management
BANK COMPANY ACT 2013:

Bangladesh Bank is, undeniably, the regulatory authority of banking as well as other financial sectors.
Bank Companies Act, 1991 had fortified the power of Bangladesh Bank, yet, various scandals in the
banking sector in recent time, a statutory showdown was required and Bank Companies Act
(amendment), 2013 was no more charming to that. The power which was vested through Bank
Companies Act, 1991 to Bangladesh Bank , was enough to check the irregularities in banking
societies, all gone in vein since political manipulation in the credit system viz. Hallmark, Bismillah
Group, BASIC Bank, NBL’s Myesha Group loan scam, Al-Arafa’s 500 crore loan scam and
stagnancy in public banks pushed under so many pressure that a change should have been inevitable.
Thus it requires seeing the law what significant change has ever been made:

1. SECTION-3: empowering of Bangladesh Bank to commence inspection:

Section 3 has been amended in implicating the fact by titling that Bank Companies Act, 2013 will be
applied to co-operatives societies and other financial institutions rather than cooperatives banks.

“ 3. Limited application of the Act for Co-operative Societies and other financial institutions.

2. OMISSIONS OF SECTION 4: NO ESCAPE FROM THE BURDEN OF BANK

COMPANIES ACT, 2013:

 By this section, GOB might exercise of suspending the application of the law for a certain period of
time which might give a safe passage of letting perversion in the financial sector if they might deem
fit to do so, most extensively, taming the scandalous course of action, hopefully the omission of this
section might help to fill up the loop holes.

3. SECTION 5: The definition of “loan defaulter” and “micro credit organization” added.

SME:

The role of Small and Medium Enterprises (SMEs) is indispensable for overall economic development of a country
particularly for developing countries like Bangladesh. Since this sector is labor intensive with short gestation
period, it is capable of increasing national income as well as rapid employment generation; achieving Millennium
Development Goals (MDGs) especially eradication of extreme poverty and hunger, gender equality and women
empowerment. SME sector has played a vital role in economic development of some prosperous countries of
Asia. Our neighbouring countries have also given due importance on SME. Terming SME as ‘employment
generating machine’ they stressed on SME development for higher economic growth, narrowing the gap of
income inequality and poverty alleviation. The present government has also put much emphasis on the
development of SME sector considering it as ‘the driving force for industrialization’.

Definition of Small Enterprise:

Small Enterprise refers to the firm/business which is not a public limited company and complies the
following criteria:

Serial No. Sector Fixed Asset other than Employed Manpower

Land and Building (Tk.) (not above)

1 Service 50,000-50,00,000 25
2 Business 50,000-50,00,000 25
3 Industrial 50000-15000000 50
Medium Enterprise refers to the establishment/firm which is not a public limited company and
complies the following criteria:

Serial No. Sector Fixed Asset other than Employed Manpower

Land and Building (Tk.) (not above)

1 Service 50,00000-10,00,00000 50
2 Business 50,00000-100,00,0000 50
3 Industrial 15000000-200000000 150
Key features of Basel II
The Basel Committee on Banking Supervision, established by the central bank governors of the
Group of Ten countries, released the revised capital adequacy framework (commonly referred to as
“Basel II”) in June 2004. The objective of Basel II is to better align minimum capital requirement of
banks more closely to the risks they face. The revised framework replaces the old “one size fits all”
approach on banks in regard to risk management. The revised framework under Basel II adopts a
three-pillar structure which represents a major step forward in terms of the identification,
quantification and management of risk and public disclosure.
Pillar 1
requires banks to maintain a minimum amount of capital for credit, market and operational risks.
The new framework provides a spectrum of approaches for banks of different levels of
sophistication, depending on their internal risk management capabilities and complexity of
operations, to calculate their minimum capital requirement.
Pillar 2
requires banks to assess the full range of risks they run and to determine how much capital to hold
against them. The banks’ capital adequacy and internal assessment process will also be reviewed for
ensuring that capital above the minimum level is held where appropriate.
Pillar 3
aims to bolster market discipline by setting out the disclosure requirements applicable to banks in
areas such as their risk profiles, capital adequacy and internal risk management.As a general rule,
different banks with different levels of sophistication and risk exposures will be subject to different
disclosure requirements.

surrender value:

Surrender value the amount the policyholder will get from the life insurance company if he decides
to exit the policy before maturity. A mid-term surrender would result in the policyholder getting a
sum of what has been allocated towards savings and the earnings thereon. From this will be
deducted a surrender charge, which varies from policy to policy. As per a recent Insurance and
Regulatory Development Authority (IRDA) directive, life insurance companies have been asked not
to levy surrender charges if the policyholder chooses to terminate the cover after five years. A
regular premium policy acquires surrender value after the policyholder has paid the premiums
continuously for three years. If, after paying premiums for three years, you do not wish to continue
with the policy, you can convert it into a paid-up one, freezing your investments at that level.
However, you need to make sure that you keep track of this policy till it matures.

Snake in the tunnel:

The snake in the tunnel was the first attempt at European monetary cooperation in the 1970s, aiming
at limiting fluctuations between different European currencies. It was an attempt at creating a single
currency band for the European Economic Community (EEC), essentially pegging all the EEC
currencies to one another.

With the failure of the Bretton Woods system with the Nixon shock in 1971, the Smithsonian
agreement set bands of plus/minus 2.25% for currencies to move relative to their central rate against
the US dollar. This provided a tunnel in which European currencies to trade. However, in practice it
implied a larger bands in which they could move against each other.

The tunnel collapsed in 1973 when the US dollar floated freely. The snake proved unsustainable, with
several currencies leaving and in some cases rejoining.
Money supply
The total stock of money circulating in an economy is the money supply.
Definition: The total stock of money circulating in an economy is the money supply. The circulating money
involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets.

Description: Valuation and analysis of the money supply help the economist and policy makers to frame the
policy or to alter the existing policy of increasing or reducing the supply of money. The valuation is important as it
ultimately affects the business cycle and thereby affects the economy.

Periodically, every country's central bank publishes the money supply data based on the monetary aggregates set
by them. In India, the Reserve Bank of India follows M0, M1, M2, M3 and M4 monetary aggregates.

Control of money supply:

1.Changes in the reserve requirement ratio:

reserve requirement is a central bank regulation that sets the minimum reserves every commercial bank needs
to hold. Rather than imposing a defined volume of money to be held by the commercial bank, many
governments and central banks prefer to define a reserve requirement to be adhered by the commercial banks.
Through adjustments in the reserves requirement ratio, the central banks would be enabled to alter the
commercial banks’ liquidity situation and hence credit supply in the market

2. Open market transactions:

Open market transactions could be defined as the utilization of primary issues of securities via auctions of central
bank or government deposits with the objectives of central bank to affect monetary situations in the markets.

3. Adjustments of discount rate in short term loans:

The official discount rate is the rate at which the Central Bank lends to commercial banks.
4. Interest rate:
The interest rate in a market will significantly influence the supply of the money in the market.

Difference between high powered money and broad money:

High-powered money:
High-powered money is a macroeconomic term referring to the monetary base, which is controlled by
the institution in a country that controls monetary policy. This is usually either the finance ministry or
the central bank.
The monetary base is called high-powered because the magnitude of changes in monetary base are
greatly magnified by the money multiplier.
As an example, a 1% increase in monetary base may lead to a 10% increase in the money supply due
to money multipler effects.

Broad money:
In economics, broad money is a measure of the money supply that includes more
than just physical money such as currency and coins (also termed narrow money).
It generally includes demand deposits at commercial banks, and any monies held
in easily accessible accounts. Components of broad money are still very liquid, and
non-cash components can usually be converted into cash very easily.
capital market:

A financial market that works as a conduit for demand and supply of debt and equity capital. It
channels the money provided by savers and depository institutions (banks, credit unions, insurance
companies, etc.) to borrowers and investees through a variety of financial instruments (bonds, notes,
shares) called securities.

A capital market is not a compact unit, but a highly decentralized system made up of three major
parts: (1) stock market, (2) bond market, and (3) money market. It also works as an exchange for
trading existing claims on capital in the form of shares.

Present scenario of Bangladesh Capital Market:

Albeit Bangladesh economy is not more integrated with the global economies, GlobalFinancial Crisis
2008 has dented every sphere of Bangladesh. Bangladesh economy hasalso been limping since being
dented by the blow of financial meltdown. On the onehand, Bangladesh economy has been gaining
benefits from the crisis and on the otherhand it has lost. Because of income declining of developed
countries’ citizenslow-priced garments of Bangladesh have been very popular registering more
growth inthe country’s apparel sector. But financial collapse in many developed countries
sloweddown the infrastructural development especially construction works in Middle East which
have pushed many Bangladeshi workers come back. Remittance inflow has risenbut number of
workers going abroad has fallen drastically. In the year 2009-10 a record$11 billon remittance has
come to Bangladesh against $9.76 billion in 2008-09 fiscalyear. Country’s foreign currency reserve
hit new record of $11.35 billion recently be-cause of low import expenditure and rising trend of
export earnings. But still 44 per-cent people are under poverty level; the Government and other
concerned organiza-tions should take comprehensive efforts to eradicate poverty. But to achieve
desiredlevel of growth to turn Bangladesh into a middle income country by 2021, growth rateshould
be accelerated. To do that more investment in infrastructure especially powersector, roads and
highway, modern and sophisticated port facilities are badly needed.Cost of doing business should
also be reduced along with the removal of red-tapism incommencing business. Public-Private
Partnership has been incorporated in the budget for 2010-11 but success will depend on time-bound
implementation. Instead of eyingtowards foreign countries, multi-lateral donors and agencies
Government shouldchoose country ’s capital market to raise fund for development projects
especially for the construction of Padma Bridge, elevated express-way and other big projects which
will also ensure people’s association in profitable Government properties. Associating general
people in lucrative Government venture means to create the way of ensuring equitable distribution
of wealth and this is only possible through strong and vibrant capital market.
Another important issue is that tax to GDP (Gross Do- mestic Product) is very poor in Bangladesh,
which has been another cause of fiscal defi- cit in almost every year. The Government has been
regularly depending upon the borrowing both from internaland external sources. Because of huge
Government borrowing from the country ’s for-mal banking sector private industrial ventures and
other commercial set ups have beenon declining trend. Instead of borrowing from banking sources
and other foreign lend- ers Government should depend on raising fund from the country’s capital
market.

Some problemsof the Capital Market of Bangladesh are mentioned below:

-The Securities and Exchange Commission (SEC) and capital market participants are weak.
-  Market participants, including brokers, dealers, and merchant bankers, require alicense to trade
from the SEC.
- The limited number of listed securities has always been a constraint on improv-
ing the liquidity and market capitalization of the stock market.
- Market participants, including brokers, dealers, and merchant bankers, require
alicense to trade from the SEC.
- The majority Government-owned Investment Corporation of Bangladesh
(ICB)remains the single largest integrated capital market operator.
-g) imposed by the SEC or the exchanges on any of the intermediaries. Tostrengthen governance
and the quality of market intermediaries, an examinationand minimum qualification standards
need to be introduced as a prerequisite forlicensing by the SEC. Only qualified and duly licensed
personnel should be al-lowed to deal with the public in transactions involving securities.
Currently,there are no institutions in Bangladesh which offer courses specifically related tothe
functions and regulation of financial intermediaries.

-The majority Government-owned Investment Corporation of Bangladesh (ICB)remains the single

largest integrated capital market operator. ICB and its sub-sidiaries accounted for 32% of total
combined turnover on the DSE and CSE inFY2004. To address conflicts of interest in its combined
operations, three sepa-rate subsidiaries were created at ICB in 2002. However, all the objectives
of un-bundling ICB’s operations have yet to be achieved. Other problems include thefollowings:

-Lack of infrastructure and physical facilities

-Existence of only dealer-broker-members (no specialist/market maker)
-Market dominated largely by unsophisticated investors
-Lack of diversity in products' availability in the market 
-Inefficient capital market—both operational and informational
-Lack of proper and adequate disclosures
-Certifiers of financial statements and property evaluators of the companyare the same/identical
-Management and Owners (Councilors) of DSE are entwined
-Lack of enforcement with the compliance of rules and regulations
-Corporate governance—sponsor-owners are managing the firm. In al-most all cases, no
professional managements are hired to run the affairsof the listed company.
-Lack of ethical orientation, education about capital & securities markets.
-Lack of trust, self-respect amongst interest groups. These are important preconditions for
building up a healthy and investment friendly market atmosphere. 
-Lack of potential securities and narrow options for the investors.
-Disclosure problem-inadequate disclosure, concealment of facts or some-times fabricated
disclosures appear in the annual reports.
-Infusion of fake shares. 
-Exaggerated projection in prospectuses. 
-Credit facilities are inadequate and interest rates are exorbitant.
 
Problem of rebuilding the image of presently depressed market.
4.1 Measures to be taken to resolve the problems
Capital market development is related with the financial deepening, which in turn, de-pends on
effective financial intermediation as well as on the availability of a wide va-riety of financial
instruments. In this context, merchant banks have yet to play due rolein revitalizing the stock
market. Measures can be initiated to remove the constraintsthat merchant banks are facing in
order to make them effective are as follows:
1-Merchant banks (MBs) should be allowed to deal in secondary securities ontheir own account,
which are not currently allowed.
2 -Merchant banks should provide price support/stabilization of their under-written IPOs in the
immediate aftermarket. They would be able to offermarket-making activities in primary and
secondary market and to extendloans to their clients for margin buying of securities, if they could
accessfunds at softer rates.
3.Capital Market stabilization/Development fund should be established at theBangladesh Bank
(BB). The fund will counter finance merchant banksthrough commercial banks to finance their
clients' investment activities.Otherwise, merchant banks should be able to obtain refinancing
facilitiesfrom the BB on certain margin basis. This will make MBs active and inject fresh fund in the
securities market.
4.MBs as wholesale banking are given more activities in order to be sustaina-ble and viable ones.
5.Making the market information dissemination system perfect and pure.
6.Corrective measures to rumors and fake reports and thus making the trad-ing of securities
smooth and uninterrupted.
7.Prompt explanations to unusual market actions.
8.Refrain companies from misleading potential investors through fake re-porting and forecasting.
9.Refrain sponsors from buying and selling own company securities without notifying the
exchange through writing.
10.Making the sources of rumors ineffective in the trading floor by strengthen-ing the market
intelligence force.
11.Quick transformation to Central Depository System, which is expected toreduce workload of
physical deposit and withdrawal of securities.
11.-Enhancement of ethical standard of all the parties involved in trading.

12.- -The listed companies that pay regular dividend should be given tax incen-tives and tax
rebates as well.
-The mode of privatization of industries will be implemented through publicissue of shares. This
will deepen the securities market, diffuse ownershipand bring in market disciplines.
-The government should off-load its equity holdings in SOEs and MNCsthrough stock market. This
will improve the supply of securities in themarket.
-Bond market needs to be developed. The implementation of government securities with
medium-term and long-term maturities will also broadenthe base of bond market.
-Establishment of a separate judicial security tribunal for dealing with casesrelated to securities
market.
-Disclosure of information to the public in the fullest possible disseminationsystem can make the
people aware about the latest situation.
-Prompt clarification or confirmation of rumors and reports that may likelyto have an effect on the
trading of securities or would likely to have a bear-ing on investment decision.
-The companies concerned must refrain from disclosure like exaggerated
-reports or predictions which exceeds what is necessary to enable the publicto make informed
investment decisions.
 
 

Blance of payment:
Set of accounts that record a country's international transactions, and which (because double entry
bookkeeping is used) always balance out with no surplus or deficit shown on the overall basis. A
surplus or deficit, however, can be shown in any of its three component accounts: (1) Current
account, covers export and import of goods and services, (2) Capital account, covers investment
inflows and outflows, and (3) Gold account, covers gold inflows and outflows. BOP accounting serves
to highlight a country's competitive strengths and weaknesses, and helps in achieving balanced
economic-growth.

Balance of trade:

The balance of trade (or net exports, sometimes symbolized as NX) is the difference between the
monetary value of exports and imports of output in an economy over a certain period. It is the
relationship between a nation's imports and exports. A positive or favorable balance of trade is
known as a trade surplus if it consists of exporting more than is imported; a negative or unfavorable
balance is referred to as a trade deficit or, informally, borrowed prosperity, living beyond a nation's
means, or a trade gap. The balance of trade is sometimes divided into a goods and a services
balance.

Balance of payment always balances:

Balance of payments consists two accounts namely current account and capital
account. The current account deals with import of visible and invisible items and
unilateral transfers. a surplus in this accounts makes a country's BOP a surplus and
a deficit in this accounts indicates that the country's BOP is deficit.
The capital account indicates the capital movements of that country with other
countries. it also shows the countries gold and other reserves.
a surplus and a deficit in the current accounts increases and decreases the reserve
and so the balance of payments is equalised always.
so when we say that BOP is deficit we mean only the current account in the BOP.
because BOP will always be equalised.

Current account positive:

The current account balance is the difference between a country's savings and its investment. "[If the
current account balance is] positive, it measures the portion of a country's saving invested abroad; if
negative, the portion of domestic investment financed by foreigners' savings."

The current account balance is defined by the sum of the value of imports of goods and services plus
net returns on investments abroad, minus the value of exports of goods and services, where all these
elements are measured in the domestic currency.

The balance of trade forms part of the current account, which includes other transactions such as
income from the international investment position as well as international aid. If the current account
is in surplus, the country's net international asset position increases correspondingly.
Recent current account balances of Bangladesh:
Bangladesh recorded a Current Account deficit of 178 USD Million in the first quarter of 2014.
Current Account in Bangladesh averaged 492.33 USD Million from 2005 until 2014, reaching an all
time high of 1526 USD Million in the first quarter of 2012 and a record low of -1638 USD Million in
the fourth quarter of 2011. Current Account in Bangladesh is reported by the Bangladesh Bank.

Bangladesh’s account balance recorded a surplus of nearly $1.5 billion in July-November period of
the fiscal year 2013-14 ending June, a central bank official said Thursday.
The Bangladesh Bank official said the current account balance showed a surplus of $1,384 million
during the first five months in 2013-14 fiscal year against a surplus of $433 million during the
corresponding period of the previous fiscal year (July 2012-June 2013), reported Xinhua.
He said the central bank’s current account balance and overall balance of payments have maintained
positive trend as growth in export earnings and inflow of remittances bolstered.
Bangladeshis living and working abroad remitted home more than $5.56 billion during the first five
months of the fiscal year 2013-14, the bank data showed.
On the other hand, it showed that the country exported $11.815 billion worth of goods in the July-
November period in 2013-14.

What is inflation also explain the causes and remedies (control) of inflation?

According to Silverman. Inflation  is define as, “inflation is the term given to the expansion of
money supply, in excess of the amount justified by the state of the trade resulting in a general rise
in prices”.

Coul born has beautifully define the term as “too much money chasing too few goods”.

According to the Crowther says, “Inflation is a state of economy in which the value of money is
following.

Examples prices are rising.

There are two kinds of inflation:

1.     Demand pull inflation.

2.     Cost push inflation.

Here we goes to describe the above kinds of inflation in detail.

1.                 Demand pull inflation:

Some economists believes that inflation is caused by increase in aggregate demand for goods. They
say that demand may rise due to many causes including increased money supply for example;
people may reduce savings and spend more. As aggregate demand rises for goods and services,
firms try to increase production. To this they need more workers, more machines and more raw
materials. If these resources are not available because they are already full employed, the firms will
not be able to increase output. In this case, rising demand causes inflation.

2.       Cost push inflation:

Some economists think that inflation occurs due to rising costs. When the firms pass on their
increased costs to consumers in the form of higher prices inflation starts. Important sources of rise
in cost include workers demand for higher wages, increase in taxes.

Causes of inflation:

a.                 Population explosion:

Our population is rising at a very fast that is 3%. On other hand the rate of growth of GNP is not very
high that is 5.4%. Thus increase in national output is insufficient to solve the problem of scarcity of
goods. Since independence, our population has increase four times.

b.                 Political instability:

A country’s economy depends upon political stability. Political instability discourages investment and
encourages speculation. Under such circumstances, the industrialist and businessman feel unsecure
and cannot make good plans. The government also cannot adopt affective measures to control rise
in prices.
c.                  Imported inflation:

A very important cause of inflation in Pakistan is the existence of inflation in their countries. Since
1970’s most countries are experiencing inflation. The result in the Pakistan has to import machinery,
raw material and other goods at higher prices.

d.                 Nationalization:

Due to nationalization of industrial in 1992, people were discouraged to make investment in

industrial. Moreover in Pakistan the nationalization industrial did not perform will. They becomes
centers of in sufficient production, high prices and poor quality goods were result.

e.                 Wages increases:

The increase in wages of workers has also contributed to inflation. Increase in wages result in higher
cost of production of goods. So their price rises.

f.   Climatic factors:

Pakistan economies heavily depend upon agriculture but due to weather condition many crops fall
short of target, thus pushing up prices. For example cotton production remain stagnant and below
target during previous years. Wheat production has also not kept pace with rising demand.
g.  Oil crises:

The oil prices in 1973 created by a large quantity of inflation throughout the world. Import of oil is a
high Burdon on our foreign exchange resources. At present 25 persons of our exports are used to
pay for oil. From time to time, oil exporting countries increase price of oil, which raises transport
cost.

h.    Artificial scarcity of goods:

Frequent artificial scarcity of essential items is created (cement, ghee, oil, sugar, etc) and huge
profits are charged. Similarly through smuggling, large quantity of essential goods is sent to
Afghanistan and India.

Remedies of inflation:

It is the main objective of every government to take proper measures to control inflation.

The main measures which are used to control inflation are:

1.     Monitory policy.
2.     Fiscal policy.
3.     Direct measures and other measures.

1.                 Monitory policy:

Monitory policy is a policy that influences, the economy through changes in money supply and
available credit. Monitory policy is adopted by central bank of country. The various monitory
measures which are used to control inflation are grouped under heads.
a.     Qualitative control.
b.     Quantitative control.
There are:
1.     Open markeet operations
2.     Variation in bank rates
3.     Credit rationing
4.     Varing reserve requirements.

2.                 Fiscal policy:

Fiscal policy is the deliberate change in either government pending or taxes to simulate or slow
down the economy. It is the budgetary policy of government relating to taxes, public expenses,
public borrowing and deficit financing.

Fiscal policy is based upon demand management examples, raising or lowering the level of
aggregate demand by controlling various. Expenses, government expenses, consumption expenses.

3.                 Direct measures:

It means the step of government like rationing of goods and freezing of prices and wages. The
government can also increase voluntary savings of people by giving them various incentives.
Other measure:

a.                 Increase in output:

The most effective method to control inflation is to increase the supply of goods. For this purchase,
industrial and agricultural out put should be increased. However, Pakistan performance in this
regard in unsatisfactory.

b.                 Control of smuggling:

All steps should be adopted to check these evils through publicity as well as punishment. Large
quantity of wheat, ghee, and other essential commodities being smuggled to Afghanistan should be
control.

c.                  Industrial peace:

Industrial peace should be control to maintain the supply of goods and avoid the danger of scarcity.
The disturbance such as what happened at Karachi during the post years? Should be control.

d.                 Control of money supply:

Volume of credit and money supply should be control. This can be done if tight monitory policy is
followed. Decrease in money supply means less purchasing power with the people.

e.                 No deficit financing:

Deficit financing should be disco tribute. The development expenses should be meat through
taxation, savings. Excessive issue of currency should not be used to meet budget deficit.

f.                   Population control:

Measure should be adopted to decrees the rate of population growth. The campaign of population
planning has already started showing some success.

g.                 Simple living:

Luxurious life style should be discouraged and simple living should be adopted. The political leaders
should themselves adopt simple living and provide an example for others.