Financial Markets and Institutions

Final assignment              Marks = 5

Download annual report of the bank assigned to your group for the year 2008 from http://www.sbp.org.pk/stats/stat-bal-sheet.htm and find the impact of:

(i)10% currency appreciation and

 (ii) 10% currency deprecation

on its net income by taking into account all its foreign currency denominated assets and liabilities. 

Assets may include:

(i)                  Cash in foreign currency

(ii)                Foreign currency deposit with SBP

(iii)               Loans in foreign currency

(iv)              Foreign securities like shares or bonds etc

(v)                Mark-up accrued on foreign currencies

(vi)              Un-realized gain on forward foreign exchange contracts – net

(vii)             Forward purchase of foreign currencies

Liabilities may include:

(i)                  Borrowings in foreign currencies

(ii)                Deposits in foreign currencies

(iii)               Forward sale of foreign currencies

Notes: After taking into account all its foreign assets and liabilities, suggest to the bank what it should do (i) when rupee depreciates against foreign currencies

(ii) when the rupee appreciates against foreign currencies(i.e. suggest when should the company take long position and when should it take short position in derivative market).