Report on Finacial Market in Pakistan

7/23/2019 Report on Finacial Market in Pakistan

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Financial Markets 1

Financial Market in Pakistan

Prepared by

Abeer Arif

Nazish Ali

Hapsha Mukhtar

Suman

Submitted to: Sir WaqarSaleemBaig

Dated: 31stDecember 2015


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Financial Markets 2

Statement of Dedication

This report is dedicated to my Lord parents and my friends! " could not ha#e completed my

$ourney %ithout their lo#e support and encoura&ement! Throu&hout my $ourney my parents

ha#e sho% &reat support for me and they ha#e al%ays stood be me and belie#ed in me and myabilities e#en at the times %hen " had &i#en up hopes! 'ut for the support and inspiration that

these indi#iduals ha#e pro#ided " %ould not ha#e been able to attain this &oal! "n all thin&s that "

do " consider the impact it %ill ha#e on them and " appreciate their support in doin& the same!

Throu&hout the process of this dissertation " found out that it is the desire to become successful

in life %hich at the end of the day makes the $ourney %orth%hile!


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Financial Markets (

Acknowledgement

" am #ery &rateful to my parents and my teacher for sho%in& their lo#e support and

encoura&ement at e#ery phase in my life! " am also thankful to my family and friends for bein&

supporti#e and for moti#atin& me %hich enabled me to accomplish my &oals! " %ish and e)pressmy &ratitude to my teacher %ho &uided me throu&hout my report %hich has helped in compilin&

this report! " am thankful to my teacher for &uidin& me and %as al%ays there %hen " needed him!

This report has become a learnin& e)perience for me %here my teacher increased my kno%led&e

at e#ery sta&e of the report! This research report %as a #ery &ood learnin& e)perience for me as "

en$oyed *uality time %ith my friends and teacher!


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Financial Markets +

Table of contents

Statement of ,edication!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2

Ackno%led&ement!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!("ntroduction!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!-

'ack&round of the Study!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!-

Aim of the .eport!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1/

0b$ecti#es of the Study!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1/

.ationale of the Study!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1/

Literature .e#ie%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!11

Financial markets and their conomic Functions!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!11

3rice ,isco#ery!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!11Li*uidity!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!11

.eduction of transaction costs!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!11

Financial "ntermediaries and Their Functions!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!12

Financial Markets in 3akistan!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1(

0#er#ie% of financial market of 3akistan!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1(

4apital Market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1+

Stock )chan&e!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1+

Stock )chan&e in 3akistan!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!15

Money Market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!16

Money Market Mutual Funds!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!16

Types of Money Market Mutual Funds!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17

"nstitutional Money Market Mutual Funds!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17

.etail Money Market Mutual Funds!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17

Financial "nstitutions!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17

'anks!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17

4entral bank!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17

4ommercial 'anks!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17

"n#estment 'anks!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1-

Microfinance 'ank!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1-

"slamic 'anks!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1-

"nsurance 4ompanies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1-


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Financial Markets 5

Leasin&!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!18

Modarba!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!18

Methodolo&y!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!18

,esi&n of the .esearch!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!18

Analysis of the ,ata and mer&ence of .ele#ant Themes!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2/

thical 4onsiderations!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!21

,ata Analysis and ,iscussion!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!22

Money Market and Lon&9term :o#ernment 'ond Market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!22

Treasury 'ills ;T9bills

3akistan "n#estment 'onds!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2+

"nterest .ate =olatility!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!25

3erformance of Forei&n )chan&e Market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!27

Trends in the Forei&n )chan&e Market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!283erformance of 4apital market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(/

4onclusion!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!((


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Financial Markets 6

List of Figures

Fi&ure 1 Financial "ntermediaries and Their Functions!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!5

Fi&ure 2 3akistan Stock )chan&e Market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!7

Fi&ure ( 3akistan "nterest .ate!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!-Fi&ure + ,eepenin& of the T9'ills Secondary Market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!15

Fi&ure 5 =olatility of 0#erni&ht rates!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1-

Fi&ure 6 Maturity 3rofile of M0!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1-

Fi&ure 7 Mo#ement of 3>. a&ainst ?S dollar!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!21

Fi&ure - .e&ional markets #@s >S91// inde)!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2+

Fi&ure 8 Number of "n#estors accounts at 4,4!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!25

Fi&ure 1/ Number of 'rokers accounts at 4,4!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!25


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Financial Markets 7

List of Tables

Table 1:Treasury bill Auctions Summary!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1+

Table 2 3akistan "n#estment 'onds!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!16

Table ( 0pen Market 0perations ;billion .upees

Table 5 3erformance of 4apital market!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2(


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Financial Markets -

Introduction

Background of the Study

fficiently functionin& financial markets ;particularly capital markets forei&n e)chan&e

and money market< are #ie%ed as an inte&ral part of a #ibrant financial system! At the same timeas the money market presents financial intermediaries %ith a platform to borro% and lend in

short9term and s*uare their respecti#e positions the forei&n e)chan&e market primarily pro#ides

enablin& en#ironment for international trade! Like%ise the capital markets present lon&9term

finance ;debt as %ell as e*uity< for the corporate and the &o#ernment sector! "n essence all three

markets function in a coordinated %ay such that there are some functional complementarities

and some substitutions! All three markets play a critical role in transmittin& the si&nals of

monetary policy in the economy! "n fact the financial markets initiate the transmission of

monetary policy ;Specifically the fore) and the money market< and then filter to other financial

intermediaries ;institutions and banks


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Financial Markets 8

market is a type of financial market that deals %ith only short9term debt instruments! 4apital

market deals %ith lon&9term securities! Money market securities are more li*uid and ha#e

smaller fluctuations compared to lon&9term securities! The stock market pro#ides an or&anized

market place for brin&in& buyers and sellers of stocks and securities to&ether! "t forms an

inte&ral part of a countryBs capital market and facilitates capital formation! The stock market can

ser#e as a barometer to &au&e the economic %ell9bein& of a country! "t performs an essential

function of mobilizin& and allocatin& sa#in&s for the lon&9term fundin& re*uirements of

business and industry! Fluctuations in stock prices ha#e a potential effect on the economy

because any chan&es in stock prices can affect peopleBs %ealth and as a result confidence! An

efficient stock market %ill help raise funds for in#estment purposes and hence is an important

factor in any firmBs in#estment decisions! Therefore studyin& the dynamic efficiency in price

si&nals in the stock market is important!

?nderstandin& the flo% of information bet%een stock markets around the %orld or stock

markets %ithin a particular re&ion or country is important for discernin& any lon&9run

relationships amon& those markets! )chan&e rate fluctuations are a ma$or source of uncertainty

in international transactions! "n an international economy the need for a forei&n e)chan&e

market is an essential in&redient for carryin& out international trade! 0ne needs to comprehend

the dynamics of forei&n e)chan&e markets! Are there stable lon&9run e*uilibrium relationships

amon& or bet%een different currencies traded in the marketsD Chat are the dri#in& forces behind

any lon&9run e*uilibrium bet%een forei&n currencies of ma$or tradin& partnersD These are the

*uestions that %ill be addressed! Fluctuations in forei&n e)chan&e markets can ha#e a direct

impact on consumers and businesses alike! For e)ample a %eaker currency at home can lead to

hi&her prices for forei&n &oods and ser#ices and thus can hurt domestic consumers! 0n the

contrary a %eak currency could benefit domestic producers due to hi&her demand for domestic

&oods in the forei&n markets! Mo#ements in e)chan&e rates can create problems for a country

%hose currency is pe&&ed for e)ample to a dollar! This research encompasses the chan&es in

different areas of financial markets operatin& in 3akistan!

Aim of the eport

There are three types of financial markets currently operatin& in 3akistan ;4apital

money fore)


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Financial Markets 1/

2//19/6! The purpose of this particular research is to analyze performance of money fore)

and capital market in 3akistan durin& FE/19/6!

!b"ecti#es of the Study

To de#elop comprehensi#e understandin& of financial markets and their functions

To identify different types of financial markets operatin& in 3akistan and their functions

To analyze the performance of money fore) and capital market in 3akistan durin& FE/19

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ationale of the Study

Ma$ority of the researches in the past ha#e focused at the interdependence amon&

different stock markets and stock indices across ?!S! uropean and Asian markets ;for

e)ample 'essler and Ean& 2//2

such as the ?!S! ?!>! France 4anada :ermany Australia S%itzerland apan and Hon&

>on&! These countries make up the %orldBs lar&est stock market in terms of market

capitalization! Ho%e#er there is no study to date concentratin& either underde#eloped countries

or markets %ithin a particular country! This #acuum in literature is partly due to the

una#ailability of data! Ho%e#er %ith the re#olution in information technolo&y one can obtain

the essential data from the stock markets in numerous of these less de#eloped countries! This

research is an effort to brid&e the e)istin& &ap! "t furnishes an understandin& of different types of

financial markets and particularly focuses on the performance of financial markets in 3akistan!

This research enriches the e)istin& literature on financial markets and pro#ides a comprehensi#e

#ie% of chan&es in the financial markets of 3akistan!

Literature e#iew

Financial markets and their $conomic Functions%

A financial market is a market %here financial instruments are e)chan&ed or traded!Financial markets pro#ide the follo%in& three ma$or economic functions

3rice ,isco#ery

Li*uidity

.eduction of Transaction 4osts


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Financial Markets 11

Price Disco#ery

3rice ,isco#ery function implies that transactions bet%een buyers and sellers of financial

instruments in a financial market decide the price of the traded asset! "t is these functions of

financial markets that si&nal ho% the funds a#ailable from those %ho %ant to lend or in#estfunds %ill be allocated amon& those needin& funds and raise those funds by issuin& financial

instruments!

Li&uidity

Li*uidity function presents an opportunity for in#estors to put up for sale a financial

instrument %ithout li*uidity an in#estor %ould be forced to hold a financial instrument until

conditions arise to sell it or the issuer is contractually obli&ated to pay it off! ,ebt instrument isli*uidated %hen it matures and e*uity instrument is until the company is either #oluntarily or

in#oluntarily li*uidated! All financial markets pro#ide some form of li*uidity!

eduction of transaction costs

Chen the participants of the financial markets are char&ed and@or bear the e)penses of

tradin& a financial instrument! "n the market economies the economic $ustification for the

presence of instruments and institution is linked to the transaction costs thereby the sur#i#in&

instruments and institutions are those that include the lo%est costs of transactions! The main

elements in#ol#ed in the determination of transaction costs

Asset Specificity

?ncertainty

Fre*uency of 0ccurrence!

Financial Intermediaries and Their Functions

Financial intermediary is special financial entity that is responsible of allocatin& funds

%hen there are situations that make it comple) for in#estors and lenders of funds to directly deal

%ith borro%ers of the funds in the financial markets! 3ension funds in#estment banks re&ulated

in#estments companies insurance companies and depositary institutions are all included in the

financial intermediaries! The financial intermediaries also play the role of creatin& more


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fa#orable transactions terms than could be realized by the in#estors@ lenders and borro%ers

directly dealin& %ith each other financial market! The financial intermediaries are in#ol#ed in the

follo%in& functions

0btainin& funds from lenders or in#estors and

Lendin& or in#estin& the funds that they borro% to those %ho need funds!

Asset transformationpro#ides at least one of three economic functions

Maturity intermediation!.isk reduction #ia di#ersification!4ost reduction for contractin& and information processin&!

Figure '% Financial Intermediaries and Their Functions

0ther functions that can be performed by financial intermediaries include

Facilitatin& the tradin& of financial assets for the financial intermediaryBs customers

throu&h brokerin& arran&ements

Facilitatin& the tradin& of financial assets by usin& its o%n capital to take a

positionin& a financial asset the financial intermediaryBs customer %ants to transact

in!

Assistin& in the creation of financial assets for its customers and then either

distributin& those financial assets to other market participants!

3ro#idin& in#estment ad#ice to customers!

Mana&e the financial assets of customers!


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Financial Markets 1(

3ro#idin& a payment mechanism!

Financial (arket in Pakistan

The financial market of 3akistan comprises of three elements

Money markets that presents short term funds

4apital Market that makes lon&9term funds a#ailable to industries and business

Fore) Market

!#er#iew of financial market of Pakistan

)apital (arket

4apital market corresponds to the market in %hich lon&9term debt securities and

corporate e*uity are issued and traded! Financial instruments that are traded %ithin the capital

market in#ol#e bonds and shares 4apital markets and specifically the stock markets in 3akistanha#e si&nificantly pro&ressed o#er the last decade!

#er since %hen the boom initially came about because of the liberalization strate&ies of

the administration at the time %e ha#e seen numerous si&nificant ad#ancements for e)ample a

comple) increment in the *uantity of recorded or&anizations and the traded #olumes

introduction of automated tradin& and settlement systems on the pattern of the %orldGs modern


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Financial Markets 1+

stock e)chan&es as %ell as intensifyin& competition for the business e#ident from the *uality of

research bein& published and distributed! As the %orkin&s of capital markets in 3akistan are

&radually presented to the business sector dri#es the effect of different instruments of financial

strate&y %ill accept more prominent essentialness! "n the risin& situation the #iability of fiscal

arran&ement %ill to a &reat e)tent rely upon the de#elopment of non9bank financial

intermediaries the determination of loan costs and the substitutability bet%een cash and

different resources! The cash re*uest capacity has been as often as possible e#aluated for

3akistan! The substitutability of money related resources under e)chan&e total systems is

e)amined! Ce supplement the abo#e e)amination by contemplatin& the determinants of financial

resources and measure intra9resources substitutability inside of a frame%ork %ide portfolio

system!

Stock $*change

Stock e)chan&e is the place %here the stocks and bonds are e)chan&ed! The chief

function of the stock e)chan&e is to allo% the local authorities &o#ernments companies and

public to raise capital by sellin& some part of the o%nership! "t also pro#ides an a#enue for

buyin& and sellin&

the securities! Such

form of securities

entail bonds trusts

deri#ati#e and

shares! "t

additionally

presents facilities

for the issues and

redemption of the securities! Similar to other commodities the demand and supply influence the

prices of bonds and shares! "n order to list a security on the stock e)chan&e there are certain

re*uirements! Transactions in the stock e)chan&e are conducted by members only! Stock

e)chan&e ser#es both as a primary market for the initial public offerin&s and as a secondary

market for their subse*uent buyin& and sellin&!

Figure +% Pakistan Stock $*change (arket


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"n#estors are not bound to sell stock or bond throu&h the stock e)chan&e! They can directly deal

%ith the seller! Similarly there is no compulsion that stock must be traded on the e)chan&e! The

securities can chan&e o%nership out of the e)chan&e %hich is called o#er the counterI or Jcurb

dealin&s!I

Stock $*change in Pakistan

"n 3akistan there are three Stock )chan&es %here %e can in#est throu&h broker!

1! >arachi Stock )chan&e ;>Se

These forei&n currency loans ha#e stren&thened the linka&e bet%een the forei&n

e)chan&e market and the money market! Specifically as forei&n e)chan&e loans adds to the

interbank forei&n currency li*uiditythe forei&n e)chan&e market has become more sensiti#e to

chan&es in interest rates ;both in domestic as %ell as international markets< and e)pectations

re&ardin& the e)chan&e rate mo#ement! "n fact traders can substitute .upee loans for forei&n

currency loans as they no% ha#e the #iable choice to borro% either in forei&n currency or in the

local currency!

Trends in the Foreign $*change (arket

Chile discussin& the trends in the e)chan&e rate the ad#ancements in the forei&n

e)chan&e market bet%een the fiscal year 2//192//6 periods can be broadly classified into three

phases that are also represented in the fi&ure belo%! The First phase ;i!e! fiscal year /1< is

characterized by a shift in e)chan&e rate re&ime from mana&ed float to free float and se#ere

pressures for the .upee depreciation! The second phase ;i!e! fiscal year to H19 fiscal year /+S althou&h sho%ed some decline but the constant increase in total listed

capital indicates that healthier companies in terms of market capitalization and other selection

criterion ha#e replaced the %eaker ones! The performance of >S91// %as outstandin& e#en if

compared %ith some of the established and emer&in& markets of the re&ion! As can be seen from

the Fi&ure - the &ro%th in >S9 1// inde) outperformed all the ma$or markets of the re&ion!

This made 3akistanBs e*uity market not only attracti#e for the domestic in#estors but also for theforei&n fund mana&ers! The in#estor base %itnessed continuous rise durin& the last fi#e years and

especially so durin& 2//5 reflectin& increased in#estor confidence! "n#estorsB accounts

maintained %ith the 4entral ,epository 4ompany recorded an e)ceptional &ro%th of o#er 117

percent durin& FE/5! Chile both indi#idual and corporate accounts increased the ma$or &ro%th

%as %itnessed in the indi#idual accounts! As compared to 2-!/ percent &ro%th in the corporate


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Financial Markets (2

account indi#idual in#estor account recorded an increase of 12/!- percent!

Figure % egional markets #s ?S$-'77 inde*

Figure 5% 1umber of In#estors accounts at )D)


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Financial Markets ((

Figure '7% 1umber of Brokers accounts at )D)

)onclusion

Money related business sectors seen a sur&e done #olumes same time enhancin&

further As far as effecti#eness Throu&hout FE/19/6! Those lon& haul administration bond

;3"'< business %ill be at present immature &enerally because of supply imperati#es! 3,s

ou&ht to assume a part o#er instructin& their corporate customers %ith settle on finer

estimatin& choices also chan&e! Those disappointment clinched alon&side ad#ancement about

lon& haul le&islature bond ad#ertise like%ise ad#ersely influenced those corporate security

sho%case!

"ncreased size and role of financial markets is a %elcome si&n ho%e#er it is associated

%ith &reater risks! Thou&h market has already started to use simple deri#ati#e products there is a

need to further de#elop deri#ati#e market to pro#ide market %ith better risk mana&ement tools!

"n e*uity markets the March 2//5 crisis hints to%ards market manipulation! Thou&h number of

in#estors has &ro%n tremendously o#er the years fe% bi& brokers can still maneu#er the market!An alternate component impartin& precariousness on e*uity businesses may be those #icinity for

badla@4FS financin& that helps speculati#e e)ercises %ithout correct e)posures! Settin& off

for%ard there %ill be an ha#e %ill further reinforce ad#ertise ethics differentiate in#estorsB base

ChatGs more uproot badla financin& to&ether for superior dan&er administration instruments! The

outstandin& performance of the e*uity market durin& 2//192//5 has brou&ht 3akistanBs capital


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Financial Markets (+

market to attention of the &lobal fund mana&ers! "nternational in#estment firms such as Mor&an

Stanley Merrill Lynch :oldman Sachs etc! ha#e entered the markets in association %ith the

local fund mana&ers! Cith market capitalization reachin& 2!- billion or e*ui#alent to (6 percent

of :,3 as of end une 2//6 the si&nificance of the e*uities market has increased for 3akistan as

%ell! T%o ma$or crises ho%e#er indicate that there is plenty of room for impro#ement! These

e#ents not only pro#ide an opportunity for self9assessment but also hi&hli&ht the need to

stren&then the &o#ernance of the e)chan&es!

To restore in#estor confidence the S43 is systematically pursuin& the stren&thenin& of

the &o#ernance of stock e)chan&es by restructurin& of 'oards and appointment of independent

mana&ement! At the same time stren&thenin& risk mana&ement systems and demutualization of

e)chan&es is also bein& encoura&ed! 4ontinuation of in#estor friendly policies outlook of

impro#ed corporate earnin&s and persistence %ith pri#atization and impro#ement of re&ulatory

frame%ork is likely to keep 3akistanBs e*uities markets attracti#e for both local and forei&n

in#estors! The future outlook of the 3akistani bourses is indeed bri&ht!


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Financial Markets (5

eferences

http@@sbp!or&!pk@publications@FM.@4hapterO1!pdf

http@@sbp!or&!pk@publications@FM.@4hapterO+!pdf

http@@%%%!sbp!or&!pk@publications@FSA@2//5@4hapterO7!pdf

file@@@4@?sers@FAS94C92@,o%nloads@7OFinancialOmarkets!pdf

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Report on Finacial Market in Pakistan