Financial Market of Bangladesh

 A place where individuals are involved in any kind of financial transaction refers to the financial market. The financial market is a platform where buyers and sellers are involved in the sale and purchase of financial products like shares, mutual funds, bonds and so on.

Let us go through the various types of financial market:

Kinds of financial market

The financial market can be categorized based on three things:

 Based on issuing :  

A.       primary market and

B.      B. Secondary market

 Based on duration:  

 A.       money market and

B.      B. capital market

 based on trading

 A.      first organized market for listed securities and

B.      second OTC market  where trading is done for only non-listed securities 

Note: For a detailed understanding of the Financial System of Bangladesh, Please visit 

http://www.bangladesh-bank.org/fnansys/index.php

Overview of Financial system of Bangladesh ( Taken from the above link)

The financial system of Bangladesh is comprised of three broad fragmented sectors:

1. Formal Sector,
2. Semi-Formal Sector,
3. Informal Sector.

The sectors have been categorized in accordance with their degree of regulation.

The formal sector includes all regulated institutions like Banks, Non-Bank Financial Institutions (FIs), Insurance Companies, Capital Market Intermediaries like Brokerage Houses, Merchant Banks, etc.; Micro Finance Institutions (MFIs).

The semi-formal sector includes those institutions which are regulated otherwise but do not fall under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange Commission or any other enacted financial regulator.

 This sector is mainly represented by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank etc., Non Governmental Organizations (NGOs and discrete government programs.

The informal sector includes private intermediaries which are completely unregulated.

The financial market in Bangladesh is mainly of the following types:

1. Money Market: The primary money market is comprised of banks, FIs and primary dealers as intermediaries and savings & lending instruments, treasury bills as instruments. There are currently 15 primary dealers (12 banks and 3 FIs) in Bangladesh. The only active secondary market is overnight call money market which is participated by the scheduled banks and FIs. The money market in Bangladesh is regulated by Bangladesh Bank (BB), the Central Bank of Bangladesh.
2. Capital market: The primary segment of capital market is operated through private and public offering of equity and bond instruments. The secondary segment of capital market is institutionalized by two (02) stock exchanges-Dhaka Stock Exchange and Chittagong Stock Exchange. The instruments in these exchanges are equity securities (shares), debentures, corporate bonds and treasury bonds. The capital market in Bangladesh is governed by Securities and Commission (SEC).
3. Foreign Exchange Market: Towards the liberalization of foreign exchange transactions, a number of measures were adopted since 1990s. Bangladeshi currency, the taka, was declared convertible on current account transactions (as on 24 March 1994), in terms of Article VIII of IMF Article of Agreement (1994). As Taka is not convertible in capital account, resident owned capital is not freely transferable abroad. Repatriation of profits or disinvestment proceeds on non-resident FDI and portfolio investment inflows are permitted freely. Direct investments of non-residents in the industrial sector and portfolio investments of non-residents through stock exchanges are repatriable abroad, as also are capital gains and profits/dividends thereon. Investment abroad of resident-owned capital is subject to prior Bangladesh Bank approval, which is allowed only sparingly. Bangladesh adopted Floating Exchange Rate regime since 31 May 2003. Under the regime, BB does not interfere in the determination of exchange rate, but operates the monetary policy prudently for minimizing extreme swings in exchange rate to avoid adverse repercussion on the domestic economy. The exchange rate is being determined in the market on the basis of market demand and supply forces of the respective currencies. In the forex market banks are free to buy and sale foreign currency in the spot and also in the forward markets. However, to avoid any unusual volatility in the exchange rate, Bangladesh Bank, the regulator of foreign exchange market remains vigilant over the developments in the foreign exchange market and intervenes by buying and selling foreign currencies whenever it deems necessary to maintain stability in the foreign exchange market.

Capital Market

A market where individuals invest for a longer duration i.e. more than a year is called as capital market. In a capital market various financial institutions raise money from individuals and invest it for a longer period.

Capital Market is further divided into:

1. Primary Market: Primary Market is a form of capital market where various companies issue new stock, shares and bonds to investors in the form of IPO’s (Initial Public Offering). Primary Market is a form of market where stocks and securities are issued for the first time by organizations.
2. Secondary Market: Secondary market is a form of capital market where stocks and securities which have been previously issued are bought and sold.

Types of  Market

1. Stock Markets: Stock Market is a type of Capital market which deals with the issuance and trading of shares and stocks at a certain price.
2. Bond Markets: Bond Market is a form of capital market where buyers and sellers are involved in the trading of bonds.
3. Commodity Market: A market which facilitates the sale and purchase of raw goods is called a commodity market.

Commodity market like any other market includes a buyer and a seller. In such a market buyer purchases raw products like rice, wheat, grain, cattle and so on from the seller at a mutually agreed rate.

4. Derivatives Market: The market which deals with the trading of contracts which are derived from any other asset is called as derivative market.
5. Future Market: Future market is a type of financial market which deals with the trading of financial instruments at a specific rate where in the delivery takes place in future.
6. Insurance Market: Insurance market deals with the trading of insurance products. Insurance companies pay a certain amount to the immediate family members of owner of the policy in case of his untimely death.
7. Foreign Exchange Market: Foreign exchange market is a globally operating market dealing in the sale and purchase of foreign currencies.
8. Private Market: Private market is a form of market where transaction of financial products takes place between two parties directly.
9. Mortgage Market: A type of market where various financial organizations are involved in providing loans to individuals on various residential and commercial properties for a specific duration is called a mortgage market. The payment is made to the individual concerned on submitting certain necessary documents and fulfilling certain basic criteria.