Hamdard Institute of Management

Sciences

AN INTERVIEW ON
“MANAGEMENT OF FOREIGN EXCHANGE RESERVES”
WITH MR. HARRIS ALAM SIDDIQUI
FOREIGN EXCHANGE RESERVE MANAGER
BACK OFFICE, STATE BANK OF PAKISTAN
ACCOUNTS DEPARMENT, KARACHI.

Submitted to : Mirza Akthar Ahsan

Submitted by : Atique Ahmed

GR # MEN - 2200326

Course : Business Research Methods

Program : MBA (Evening)

 AN INTERVIEW ON
“MANAGEMENT OF FOREIGN EXCHANGE RESERVES”

What is Interview

Interview is a structured or unstructured or non-disguised instrument, administered to

respondent for obtaining information. Interview is one of the methods to collect primary data.

Types of Interview

We can classify interviews into three types, which include:

i. One-to-One Interview (one interviewer and one interviewee)

ii. Panel Interview (several interviewers and one interviewee)

iii. Focus Group Interview (one interviewer and several interviewees)

An Interview was conducted with Mr. Harris Alam Siddiqui, Foreign Exchange Reserve

Manager, Back Office, State Bank of Pakistan, Accounts Department on 11 th December,

2003 12:30 A.M at his office situated at SBP, Accounts Department, Boulton Market Building,

Karachi.

Introduction Of Interviewee

Name: Mr. Harris Alam Siddiqui

Office Address: Room # C-3, Back Office, State Bank of Pakistan,

Accounts Department, Boulton Market Building, Karachi

Phone #: 244514166
The response of interviewee is as under:

Q.1 What is your job profile?

Currently I have been assigned to consolidate and strengthen the back-office function of the
Treasury of State Bank of Pakistan. Previously these functions were not so refined and with the
change in environment, automation and reporting issue, State Bank Decided to have a fresh
look at its Systems and procedures. One of the main functions of the back-office is to maintain
the position of Foreign Exchange Reserves of the country on daily basis.

Q.2 Why hold Foreign Exchange Reserves?

Foreign Exchange Reserves are hold for the following purposes:
To invest in the FX markets.
To secure the ability to make Foreign Currency Payments (e.g Imports).
For domestic monetary policy reasons.
A store of national wealth.

Q.3 How Foreign Exchange Reserves of a country are built up?

Foreign Exchange Reserves of a country are built up from its foreign trade flow gap i.e exports
and imports, inward remittances e.g home remittances, loans repayments or other foreign
currency receipts and payments.

Q.4 How much Foreign Exchange Reserves were in the country as on 10-12- 2004?
The total Foreign Exchange Reserves in the country as on 10 th December, 2004 were $ 11.7
billion and are increasing day by day. These reserves are lying with State Bank of Pakistan and
with other Bank. The amount of reserves lying with other Banks very little while large portion
is lying with State Bank of Pakistan
Q.5 Where do we have kept these reserves and whether expected benefits are being
derived from said increase of Foreign Exchange Reserves?
These reserves are invested in short-term deposits and risk free treasury on competitive rates of
return prevailing in the international markets. These investments are made considering the
security of the capital, lowest level of risk and competitive rate of return.
The reserves held with SBP are invested in time deposits with tenor of 01 week, 02 weeks, 01
month and 02 month with reputable commercial banks worldwide in different currencies and
working balances are kept in nostro accounts with Federal Reserve Bank of New York, Bank of
England and Bank of Tokyo etc. A part of these reserves is also kept in the secured Foreign
Treasury Bills and Islamic Bonds.
Regarding names and location of the Banks with which State Bank of Pakistan is keeping its
reserves, the information is classified. Besides, none of the Central Banks all over the world
disclose such information.

Q.6 The amount of Foreign Exchange Reserves of State Bank of Pakistan invested along
with the names of the countries and the Banks in which it has been invested?
All claims to Foreign Currency payable abroad whether for imports loan repayment or for
services rendered by foreign residents are settled through Foreign Currency receipts held
abroad. The term Foreign Exchange applies to liquid assets in Foreign Currency, which are
primarily, bank balances denominated in Foreign Currency. Foreign Banks notes are not
Foreign Exchange in narrow sense. They can be converted into Foreign Exchange provided
they can be placed without restriction to the ordinary Commercial Account abroad.

Q.7 Why we investment our Foreign Exchange Reserves abroad instead of investing those
within country?
Accordingly, Central Banks all over the world keep their Foreign Exchange Reserves abroad
with other Central Banks and Commercial banks of international repute. State Bank of Pakistan
also very prudently manages its Foreign Exchange Reserves with the sole objective of ensuring
security and safety of its Funds by placing them with other country’s Central Banks as well as
highly reputed international commercial banks abroad. By keeping these funds abroad, State
Bank ensures that funds are not concentrated with only a few banks or in one geographical
region to avoid inherent risk. Due to its conservative and prudent approach, the State Bank of
Pakistan does not go for higher return or keeping the funds with lower rated banks as going for
higher return involves under higher risk which is to be avoided keeping in view safety and
security of country’s precious Foreign Exchange Reserves.

As regards placements of reserves with Foreign Banks and national banks, there are certain
conditional ties under IMF (International Monetary Fund) program in this respect, which are to
be compiled with. Besides, our domestic banks working abroad are rated lower to the criteria
set for international commercial banks for prudent safe keeping of the reserves.

Q.8 Some critics say that the reserves are artificial and this in reserves is a temporary
phenomenon, please comment?
The reserves are created out of the inward remittances, import/exports and the loans received
from different agencies. There has been criticism that the current rise in the reserve has been
due to the September 11 event. Although to some extent this is true as our foreign remittances
increased after 9/11 but there was major contribution of the policies of the State Bank as well.
State Bank took certain steps in 2000 in order to curb the Hundi and Hawala system. Besides
better economic prospects and better macro-economic management has resulted in the rise of
these reserve levels. As our exact holding could not be disclosed I can only provide you with
the total numbers.

Q.9 Some people say that we earn nothing a very little on Foreign Exchange Reserves
investment, if true, what are the reasons?
No it is not right that we earn nothing or very little on Foreign Exchange Reserves investment.
We invest our reserves with those banks that offer high rate of return. We keep in mind one
thing at the time investment that safety of funds.

Q.10 Do you have any plan to increase in these reserves more? Do you any target level?
We have no specific plan to increase these reserves. We follow the policies made by State
Bank’s higher authorities and Government of Pakistan. Regarding policies, we also follow the
instructions contained in State Bank’s Foreign Exchange Manual, 1956. Further we follow the
instructions having circulars issued are issued by Exchange Policy Department and Exchange
& Debt Management Department. There is no target level. Increase in Foreign Exchange
Reserves is favorable for the country’s economy. Still our reserves are very low as compared to
our neighbor countries like China and India. There is need to increase further these reserves. So
our plans depend on the policies are being made will be made in future by our higher
authorities.
Q.11 Are you satisfy with your job?
I am satisfied with my job but I am not satisfied with working environment prevailing in the
Bank.
Right now we are going through a transition phase. At one hand we are trying to automate our
systems to bring in more efficiency and control and on the other hand we are exploring new
products like derivatives and swap to minimize risk and maximize return on the available
Foreign Exchange reserves.

Q.12 What are your further plans?

Further plans are being made to send the officers for foreign trainings working at this project
whish would helpful for management of Foreign Exchange Reserves.

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