Executive Summary.docx

SUBMITTED TO: MD. KAMRUL ISLAM LECTURER DEPARTMENT OF BUSINESS ADMINISTRATION NOTREDAME UNIVERSITY OF BANGLADESH

COMPARING EURO AND USD WITH BANGLADESHI TAKA

SUBMITTED BY: Md. BYAZID MIA LIMON ID: 4-15010205 th Section 4 Batch Finance

Acknowledgement In performing the assignment, I had to take the help and guideline of respected Teacher, who deserve our greatest gratitude. I would like to show my gratitude to my respected Course instructor Md. Kamrul Islam, Sir for giving me a good guideline for assignment throughout the course period. I would also like to expand my deepest gratitude to all those who have directly and indirectly guided me in writing this assignment.

Many people, especially my classmates itself, have helped me and made valuable comment suggestions on this report which gave me an inspiration to improve my report.

-Md. Byazid Mia Limon ID: 4-15010205

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Contents Executive Summary ............................................................................................................. 3 Introduction ......................................................................................................................... 4 Methodology........................................................................................................................ 5 Findings ............................................................................................................................... 5 Reason Behind appreciation or Depreciation ...................................................................... 6 Conclusion ........................................................................................................................... 9 Reference ........................................................................................................................... 10 Appendices ........................................................................................................................ 11

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Executive Summary This report provide standard deviation and average of Bangladeshi Taka against two currencies which is United States dollar (USD) and Euro and also it provides the reasons why Bangladeshi Taka depreciate against these two currencies. Methods of the analysis were statistical formula standard deviation and average of 40 month exchange rate data. There are six reason discussed in the report these are the behind of the currency drop they are Inflation, Interest Rate, Trade deficit, Money laundering, political and economic performance and National debt. Each of these were discussed with the current situation and with data. The report also investigates the fact that the analysis conducted has limitations. Some of the limitations includes all the data are second hand so there are reliability issues with the data and another one is the availability of the data. The findings of the report suggest that Bangladeshi Taka is depreciating than previous years. In the past taka had more strong position than current situation but it is depreciating in current years. The high variation was noticed in the year of 2017 and moderate variation in 2018 and 2016 in case of USD to BDT. And in case of Euro high variation observed in the year of 2017.

So, I think that government should initiate procedure that will stop further depreciating the value of Taka against USD and Euro.

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Introduction The objective of this study is to find the standard deviation between two currencies. United States dollar (USD) and Europe currency, I took two currency and their 40 month data to see how volatile they are against Bangladeshi Taka. Bangladeshi Taka is not that much strong against these currencies as Bangladesh is a developing country but it seems Bangladeshi Taka is relatively strong than its neighboring country. In these recent year Bangladeshi Taka is getting relatively stronger than its neighboring country. This report will try to figure out the volatility of Bangladeshi Taka against USD and Euro. First, Exchange rates float freely against one another, which means they are in constant fluctuation. Currency valuations are determined by the flows of currency in and out of a country. A high demand for a particular currency usually means that the value of that currency will increase. Currency demand is driven by tourism, international trade, mergers and acquisitions, speculation, and the perception of safety in terms of geo-political risk. For example, if a company in Bangladesh sells products to a company in the U.S. and the U.S.-based company has to convert dollars into Bangladeshi Taka to pay for the goods, the flow of dollars into Taka would indicate demand for Bangladeshi Taka. If the total currency flow led to a net demand for Bangladeshi Taka, the currency would increase in value. The demand for a country's currency depends on what is happening in that country. Second, the interest rate paid by a country's central bank is a big factor. The higher interest rate makes that currency more valuable. Investors will exchange their currency for the higher-paying one. They then save it in that country's bank to receive the higher interest rate. Third, is the money supply that's created by the country's central bank. If the government prints too much currency, then there's too much of it chasing too few goods. Currency holders will bid up the prices of goods and services. That creates inflation. If way too much money is printed, it causes hyperinflation. That usually only happens when a country must pay off war debts. It's the most extreme type of inflation. Some cash holders will invest

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overseas where there isn't inflation, but they'll find that there isn't as much demand for their currency since there's so much of it. That's why inflation will push the value of a currency down. Fourth, a country's economic growth and financial stability impact its exchange rates. If the country has a strong, growing economy, then investors will buy its goods and services. They'll need more of its currency to do so. If the financial stability looks bad, they will be less willing to invest in that country. They want to be sure they will get paid back if they hold government bonds in that currency.

Methodology The data of this study is collected completely from the external sources & secondary data. Several Website were used for obtaining data. This study was conduct both in a quantitative & qualitative manner. The data were entered in to the Microsoft Excel and analyzed their average and Standard deviation. Microsoft Excel and several other application were used for this report. There were also certain limitation for the data thus it was obtained from several website the trustworthiness and the quality may not be ensured.

Findings I took 40 month data of two currencies which is USD and Euro. The deviation is more in the year of 2017 then 2016 and 2018, mention that in the year of 2019 only 3 month data were collected which is January, February & March. So the exact standard deviation couldn’t find out for the year of 2019. But if we saw the average of the

1 Year 2019 2018 2017 2016

USD To BDT 2 3 Standard Deviation Average 2.51186 BDT 79.92 0.867848 BDT 82.16 1.180437502 BDT 79.51 0.943610766 BDT 77.07

USD currencies is 82.16 Tk per dollar in the year of 2018 and 79.51 in 2017 and lastly 77.07 in the year of 2016.

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In the Previous year we saw that Bangladeshi Taka has more strong position but recent year it is declining. We saw it is getting weaker against USD. There might be several reason for this like inflation, Public trade, Balance of trade etc.

In case of Euro the Bangladeshi Taka is weaker than USD. Standard deviation is respectively 2.37, 3.54, and 1.59 for the year of 2018, 2017,

Euro To BDT 1 Year

2016 and 0.85 in three month of 2019. Euro is more volatile against Taka thus it has higher

2019 2018 2017 2016

2 3 Standard Deviation Average 0.85950 BDT 94.87 2.37539 BDT 96.89 3.54140 BDT 91.53 1.59035 BDT 83.71

standard deviation than USD. In case of euro we saw the same result as it was in USD. The average was 96.89, 91.53, 83.71 tk per Euro. We saw Bangladeshi taka had strong position in past year now it is depreciating. Although it had kept a consisting position but it is getting weaker slowly.

Reason Behind appreciation or Depreciation i.

Inflation: Changes in market inflation cause changes in currency exchange rates. A country with a lower inflation rate than another's will see an appreciation in the value

of

its

currency.

The

prices of goods and increase

services at

a

slower rate where the inflation is

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low. A country with a consistently lower inflation rate exhibits a rising currency value while a country with higher inflation typically sees depreciation in its currency and is usually accompanied by higher interest rates. Bangladesh has a moderate inflation rate. But the ideal Inflation rate should be 2% per annum but we are developing country so the inflation rate should be 4-5% but we see we have more than that and these inflation rate depreciate the currency.

ii.

Interest rate: Changes in interest rate affect currency value and dollar exchange rate. If the Interest gets higher foreign country will likely to invest in Bangladesh and will get profit from it and that’s why the demand for Tk will rise and the currency will appreciate. Interest rates decisions are

taken

Bangladesh

by

the Bank.

Bangladesh has saw a lower interest rate in past 10 years which is 7.4% to 6%. This might be one reason for depreciating Bangladeshi Taka. But there are also reverse effect of this.

iii.

Trade Deficit: Bangladesh has a trade deficit which means it imports more than export, it is one of the major concern for our depreciating

currency.

When there is more import than export the demand for Taka reduced that’s why the currency fall. In last 45 years we saw the deficit almost

doubled

in

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Bangladesh. In 2013 it was only 7 billion dollar but in 2018 the deficit gets almost doubled. So it is one of the main forces that’s drives our currency down.

iv.

Money Laundering: The big chunk of money from our country got laundered from our country which is one of the main reason for depreciating our currency. The illegal money transferred in to foreign land. Corruption, Illegal business is behind for the Money laundering.

v.

Political Stability and Economic Performance: Foreign investors inevitably seek out stable countries with strong economic performance in which to invest their capital. A country with such positive attributes will draw investment funds away from other countries perceived to have more political and economic risk. Political turmoil, for example, can cause a loss of confidence in a currency and a movement of capital to the currencies of more stable countries. In Bangladesh the political stability is absent, and another main issue is bureaucratic culture in Bangladesh. In Bangladesh the bureaucratic culture is inevitable that’s why we can’t attract foreign investment. The Tax and tariffs system in Bangladesh is very complex, starting new business and met the regulatory compliance is very complex here.

vi.

National debt: Bangladesh has a high national debt though Bangladesh is successful paying its interest. But it affect the exchange rate because we have to give lots of money as a form of interest. This devaluates our currency because we have to pay these interest in lender form of currency this reduce the demand for Bangladeshi Taka. In a recent research it shows that 80% financing of mega projects in Bangladesh is a foreign loan. World bank, Asian development bank, Jica, generally Bangladesh have a higher amount of loan from these organization. Bangladesh also took loans from different loan from various government by G2G procedure. Besides these high amount of loans government also take money from its internal sources. Beside this the material, manpower and technology of these megaproject also came from abroad which also is a big factor in Import. We took loan and from these money we buy the various material for megaproject.

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Conclusion In this study I tried to find out the exchange rate standard deviation and their reason. I took 40 month of data for two currency and analyze them I found Bangladeshi currency is depreciating against USD and Euro. There are several factor that depreciating the value of our money. These reason were discussed in the upper section, here is a picture that shows the Bangladesh have a higher trade deficit which is 148.60 Billion dollar and we have very low amount of capital inflow. We have deficit in current account which is 1354 Million USD. These should be emphasized by our government or else the currency will further depreciate more and more.

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Reference I. II. III. IV. V.

Website of Bangladesh Bank (https://www.bb.org.bd/) Investopedia (https://www.investopedia.com/) Exchange rate organization (https://www.exchange-rates.org/) Pond sterling (https://www.poundsterlinglive.com/) XE Currency converter (https://www.xe.com/)

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Appendices Year

Month

2019

March

2018

2017

USD TO BDT Indirect (1$=BDT) Qouatation BDT 84.48 $0.0118

Euro to BDT (1€=BDT) BDT 96.00

Indirect Qoutation EUR 0.0104

February January Decembe r Novembe r October Septemb er August

BDT 83.79 BDT 83.72 BDT 83.65

$0.0119 $0.0119 $0.0120

BDT 94.68 BDT 93.92 BDT 93.50

EUR 0.0106 EUR 0.0106 EUR 0.0107

BDT 82.92

$0.0121

BDT 93.81

EUR 0.0107

BDT 82.07 BDT 82.27

$0.0122 $0.0122

BDT 95.24 BDT 95.40

EUR 0.0105 EUR 0.0105

BDT 83.13

$0.0120

BDT 96.97

EUR 0.0103

July June May April March February January Decembe r Novembe r October Septemb er August July June May

BDT 81.44 BDT 82.82 BDT 82.79 BDT 81.68 BDT 80.93 BDT 81.10 BDT 81.13 BDT 81.03

$0.0123 $0.0121 $0.0121 $0.0122 $0.0124 $0.0123 $0.0123 $0.0123

BDT 95.69 BDT 97.25 BDT 96.21 BDT 100.43 BDT 99.32 BDT 101.48 BDT 97.44 BDT 96.35

EUR 0.0105 EUR 0.0103 EUR 0.0104 EUR 0.0100 EUR 0.0101 EUR 0.0099 EUR 0.0103 EUR 0.0104

BDT 81.73

$0.0122

BDT 95.44

EUR 0.0105

BDT 81.66 BDT 78.88

$0.0122 $0.0127

BDT 95.44 BDT 93.92

EUR 0.0105 EUR 0.0106

BDT 78.57 BDT 78.70 BDT 78.52 BDT 78.65

$0.0127 $0.0127 $0.0127 $0.0127

BDT 94.54 BDT 92.57 BDT 91.55 BDT 89.70

EUR 0.0106 EUR 0.0108 EUR 0.0109 EUR 0.0111

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2016

April March February

BDT 79.66 BDT 79.15 BDT 78.96

$0.0126 $0.0126 $0.0127

BDT 88.70 BDT 86.97 BDT 86.26

EUR 0.0113 EUR 0.0115 EUR 0.0116

Janyary

BDT 78.65

$0.0127

BDT 86.96

EUR 0.0115

Decembe r Novembe r October Septemb er August July June May April March February January

BDT 77.69

$0.0129

BDT 84.65

EUR 0.0118

BDT 77.36

$0.0129

BDT 84.27

EUR 0.0119

BDT 76.21 BDT 76.22

$0.0131 $0.0131

BDT 83.27 BDT 81.27

EUR 0.0120 EUR 0.0123

BDT 75.13 BDT 76.45 BDT 76.65 BDT 76.99 BDT 77.99 BDT 77.49 BDT 78.15 BDT 78.56

$0.0133 $0.0131 $0.0130 $0.0130 $0.0128 $0.0129 $0.0128 $0.0127

BDT 80.66 BDT 82.55 BDT 83.27 BDT 83.47 BDT 84.65 BDT 85.62 BDT 84.53 BDT 86.33

EUR 0.0124 EUR 0.0121 EUR 0.0120 EUR 0.0120 EUR 0.0118 EUR 0.0117 EUR 0.0118 EUR 0.0116

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USD To BDT 2

3

Year 2019

Standard Deviation 2.51186

Average BDT 79.92

2018

0.867848

BDT 82.16

2017 2016

1.180437502 0.943610766

BDT 79.51 BDT 77.07

1 Year 2019

Euro To BDT 2 Standard Deviation 0.85950

3 Average BDT 94.87

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2018 2017 2016

2.37539 3.54140 1.59035

BDT 96.89 BDT 91.53 BDT 83.71

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