Money Market of

Bangladesh
 Team Members

Sams Saiyadena Zeesha

ID: 1642
Batch:24

Farhan Anjum Junayed

ID: 1657
Batch:24
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.

Money market securities usually have an active secondary market. This

means that after the security has been sold initially, it is relatively easy
to find buyers who will purchase it in the future.
Characteristics of Money Market

The three basic characteristics of money market

securities are:
1. They are usually sold in large denominations.
2. They have low default risk.
3. They mature in one year or less from their
original issue date.
 Functions of Money Market

The main functions of the money market

include:

1. Financing Trade

2. Central Bank Policies

3. Growth of Industries

4. Commercial Banks Self-sufficiency

 Entities in Money Market
The money market generally consists of :

1. Central Bank

2. Commercial banks, Co-operative banks, Finance & Industrial

Service Companies.

3. Investment companies, Finance companies, Insurance companies,

Pension funds etc.

4. Individuals, firms, companies, corporate bodies, trust and other

institutions.
 Money Market in Bangladesh

Structurally, money market in Bangladesh is composed of

two broad groups of institutions: formal and informal. The
formal institutions (up to February 2005) include
Bangladesh Bank, 4 NCBs, 30PCBs, 10 FCBs, 5
Specialized Banks (SBs) and 28 Non-bank Financial
Institutions (NBFIs).Informal institutions comprises mainly
of the moneylenders and small co-operative organizations
which are not under the control of central bank.
Money Market Instruments In Bangladesh

Commonly used money market

instruments in Bangladesh:
1. Treasury Bills (T-Bills)
2. Repo and Reverse repo
3. Certificate of Deposit
4. Commercial Paper
5. Bankers’ Acceptance
 Treasury Bills (T-Bills)

Treasury Bills (T-Bills) of 91, 182 and 364 days maturities are issued
through auctions. Only Primary Dealers (PD) can submit bids in the
auctions. Other institutions and individuals can submit bids in auction
but through the PDs. At present 20 banks are performing as Primary
Dealer. T-Bills can be sold in the secondary market.
 T-Bills (Continued)

Issued By:

As per agreement between The Government of Bangladesh and

Bangladesh Bank in 1985 (Treasury rules-1998 (Appendix-1, Section-3)
and Bangladesh Bank (BB) Order-1972, article 20 empowers
Bangladesh Bank to issue new loans and manage public debt for the
Government.
 T-Bills (Continued)

Main Features of Treasury Bills:

Three tenors are available namely 91 day, 182 day and
364 day.
Price is determined by the market.
They are issued at a discount and redeemed at the face
value at maturity.
Tradable in the secondary market.
Issued in script less form.
The central Bank releases monthly calendar through BB
website.
 T-Bills (Continued)
How T-Bills are Issued?
Weekly (usually on Sunday) auctions of Treasury Bills are held following a pre-
announced auction calendar with a specified amount. Bidders quote their prices.
The Auction Committee determines the cut-off price from the offered prices.
Who Can Place Bid in the Auction?
Primary Dealers (PDs) can place bids in auction. Other commercial banks and
Non-Bank Financial institutions, Insurance companies, corporate, individuals,
provident fund etc. can also participate in auction through PDs.

What is a PD?
Primary Dealers (PD) are financial institutions that act as underwriters of
government securities in primary auction. There are 20 PDs in Bangladesh. In
Bangladesh Commercial Banks act as a PD.
 T-Bills (Continued)

Primary Dealers of T-Bills:

Janata Bank Ltd Agrani Bank Ltd
Sonali Bank Ltd NCC Bank Ltd
Uttara Bank Ltd Southeast Bank Ltd.
Prime Bank Ltd National Bank Ltd
AB Bank Ltd. Mercantile Bank Ltd
Mutual Trust Bank Ltd Jamuna Bank Ltd
Midland Bank Ltd NRB Bank Ltd
NRB Commercial Bank Ltd South Bangla Agriculture & Commercial
Bank Ltd
NRB Global Bank Ltd Modhumoti Bank Ltd
The farmers Bank Ltd. Meghna Bank Ltd
 Repurchase Agreement(REPO)

A repurchase agreement (repo) is a short-term form of borrowing that involves

selling a security with an agreement to repurchase it at a higher price at a later
date. It commonly used by dealers in government securities who sell Treasury
bills to a lender and agree to repurchase them at an agreed price at a later date.
The central bank buys repurchase agreements as a way of regulating the money
supply and bank reserves. Their date of maturity ranges from overnight to 30
days or more.
 Repurchase Agreement(REPO)

Repo auction is held for 1 and 7 days tenure. When a bank

or financial institution has excess liquidity, it can deposit it to
Bangladesh bank. This procedure is frequently known as
Reverse Repo. There is also a Reverse Repo auction that is
held side by side of the T-bill auction. Reverse Repo auction is
also held for 1 and 7 days tenure.
 Commercial Paper(CP)

Commercial Paper (CP) is basically a short-term debt security issued by

highly rated companies to raise funds for funding operating expenses as well
as current assets such as account receivables and inventories. Maturities on
CP rarely range any longer than 270 days though it can be up to 365 days.
CP is being issued in the form of promissory note in Bangladesh. It is
typically issued at discount like Treasury Bills, reflecting prevailing market
interest rates. That means, investors purchase promissory notes at less than
face value and receive the face value at maturity. The difference between
the purchase price and face value, called the discount, is the interest
received on such investment.
 Commercial Paper(CP)
Who Can Issue CP?
Generally, companies and financial institutions can issue commercial paper. Even
though banks and non-bank financial institutions (NBFIs) can act as arrangers for
the issuers, only a scheduled bank can act as an issuing and paying agent (IPA) for
the issuance of CP. Banks, NBFIs and corporate bodies are the major investors in
CP.
Current Status of CP in Bangladesh: Eastern Bank Limited is the pioneer of CP in
the country; it raised Tk. 500 million for ACI Limited in 2013. Since then, this
market is growing very fast in our country with approximate growth of 593.10 per
cent in 2015. ACI Limited is so far the largest issuer of commercial paper in the
country with approximately 20 per cent market share. The amount of current
outstanding CPs is close to Tk. 10,050 million.
Along with Scheduled banks, Lanka-Bangla is the first non-bank financial
institution in Bangladesh to raise funds by issuing commercial paper.
 Banker’s Acceptance

Banker’s Acceptance is a short term credit investment created by non-

financial firm and guaranteed by a bank to make payment. It is simply a bill of
exchange drawn by a person and accepted by a bank. It is a buyer’s promise
to pay to the seller a certain specified amount at certain date. This is
guaranteed by the banker of the buyer in exchange for a claim on the goods as
collateral. Banker’s acceptances carry maturities ranging from 30 to 270 days,
with 90 days being the most common.
Banker’s acceptances are traded among financial institutions, industrial
corporations, and securities dealers as a high-quality investment and source of
ready cash.
 Banker’s Acceptance

Certificate of Deposit:
A certificate of deposit (CD) is issued directly by a commercial bank, but it can
be purchased through brokerage firms. It has a maturity date ranging from three
months to five years and can be issued in any denomination. Most CDs have a
fixed maturity date and interest rate, and they attract a penalty for withdrawing
prior the time of maturity.
In Bangladesh, CDs are issued by scheduled commercial banks. The principal
buyers of negotiable CDs include corporations, state and local governments,
foreign central banks and governments, wealthy individuals and a variety of
financial institutions.
Most buyers hold CDs until they mature but still there is an active secondary
market to trade the CDs.
Thank You