Foreign exchange companies Prepared by: A.Fatma shehbaz B.Javeria C.Hina D.Mohsin E.Imtiaz F.Abdullah

Contents:  FE its market & FE company  Why we need to establish FE company  Types of companies  Functions of different companies  Procedure for forming a company  Overall impact on Forex situation in Pakistan

What is foreign exchange?  According to Hartly Withers, “ Foreign exchange is the art and science of international monetary exchange”  The forex market is the world’s largest financial market. Over $4 trillion dollars worth of currency are traded each day. The amount of money traded in a week is bigger than the entire annual GDP of the United States.

What is foreign currency market?  Foreign exchange markets are markets on which individuals, firms and banks buy and sell foreign currencies Locations OTW – foreign exchange trading occurs with the help of the telecommunication net between buyers and sellers of foreign exchange that are located all over the world – a single international foreign exchange market for every single currency – foreign exchange trading takes place at least in some of the world financial centers in every moment

SWIFT It is a communications network for international financial market transactions linking effectively more than 25,000 financial institutions throughout the world who have been allotted bank identified codes. The messages are transmitted from country to country via central interconnected operating centers located in Brussels, Amsterdam and Culpeper, Virginia. The member countries are connected to the centre through regional processors in each country.

What is FE company? A FE company is a company that offers currency exchange and international and global payments to individuals. Sometimes it is called as fx broker.

Why we need to establish FE Companies? Its become need of the hour to establish FE company because After Independence in August 1947, there is a tough and strict control on Foreign Exchange :  Strict control for Fe repatriation for exporters and limited availability for import purposes  There is no foreign exchange existing market  Individuals have no right to hold foreign exchange for any purpose  Fixed Travel quota for foreign visits  Limited availability of foreign exchange for education abroad

Need for establishment of FE company: State Bank of Pakistan authorized Money Changers to conduct Money Changing business in year Under the directive of State Bank of Pakistan, Foreign Exchange Regulation Act. 1947) for establishment of Exchange Companies, which were required to replace the existing system of Authorized Money Changers (F. E. Circular No.9 Dated 30th July,2002)

Types of FE companies in Pakistan: Pakistan Currency Exchange Company (Pvt.) ltd AA currency exchange company (Pvt.)ltd Links international currency exchange company (pvt.)ltd Ravi Exchange Company (Pvt.) Limited Wallstreet Exchange Company (Pvt.) Limited

FE Companies in PAK: Dollar East Exchange Company (Pvt.) Ltd HBL Currency Exchange (Pvt.) Ltd NBP Exchange Company Limited Paragon Exchange (Pvt.) Limited

Functions of FE companies:  Clearing of currencies: – Service of exchanging one currency for another  Provision of Credit: – Trader that bought a certain good from the manufacturer, needs time to sell this good to the final customer and to pay the manufacturer with the money he received from the customer

Functions: Risk avoiders: Activities with which the foreign exchange companies participants avoid exchange rate risk or activities with which they are closing their open foreign exchange position. they also look after the interest of the country.

Procedure for forming a FE Company: After the Exchange Companies is registered by SECP, the applicant would apply to the SBP for issuance of License against surrender of at least 5 Money Changers Licenses and for commencement of operations. The minimum paid-up capital of the company would be Rs.20 Million and trade shall not include “ BANK” etc.

Impact of FE companies in FX situations: In Flow/Outflow of Foreign Exchange Reserves In Flow/Outflow of Foreign Exchange Reserves IMF assistance again required as per their conditions- A major challenge to the coming Government IMF assistance again required as per their conditions- A major challenge to the coming Government Export /import gap Export /import gap Depleting Foreign Exchange Reserves Depleting Foreign Exchange Reserves Increased Remittances Increased Remittances Pressure on Pak Rupee against Dollar Pressure on Pak Rupee against Dollar

Impact:

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