Foreign Currency Deposits and International Liquidity Shortages in Pakistan

Mirakhor, Abbas; Zaidi, Iqbal

doi:10.5089/9781451858211.001

Cited by 9 publications

(3 citation statements)

References 16 publications

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“…The importance of religiosity aspects and differences of Sukuk with conventional bonds Sukuk share many features with conventional bonds, but have certain characteristics that distinguish them from the former, as Sukuk entitle the holder to an ownership stake in the Investment in Islamic Sukuk underlying asset, while a bond represents the issuer's pure debt (Cakir and Raei, 2007;Fathurahman and Fitriati, 2013). This remains true despite attempts by various scholars to close the gap between these two types of financial instruments and the expected convergence between Islamic and conventional finance (Mirakhor and Zaidi, 2006;Miller et al, 2007;Wilson, 2008;Azmat et al, 2014). Other pertinent differences between Sukuk and conventional finance include their financial and tax treatment in the financial statements of both the issuer and the investor (Thuronyi, 2007).…”

Section: 1mentioning

confidence: 99%

Factors affecting investors’ decision regarding investment in Islamic Sukuk

Duqi

Al‐Tamimi

2019

QRFM

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Purpose The purpose of this study is to examine the perception of UAE investors regarding their investment preference of Sukuk versus conventional bonds. Design/methodology/approach A modified questionnaire was used in this study with the objective of answering the research questions and testing the developed hypothesis. The survey was conducted on a sample of investors of the UAE Dubai Financial Market, which is one of the main exchanges where Sukuk are traded. Findings The results indicate that Sukuk features (characteristics) represent the most important influencing factor in the willingness of UAE investors to invest in Islamic Sukuk, followed by the religious factor, as strongly predicted, followed by the expected return and followed by the availability of information. Finally, the results indicate that there is no significant difference in investment in Sukuk among UAE investors based on investors’ gender. Originality/value The current study is considered the first of its kind conducted on the UAE. As far as the authors know, there are no studies that focus specifically on social and economic factors that affect the propensity of investors to trade in Sukuk.

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Section: 1mentioning

confidence: 99%

Factors affecting investors’ decision regarding investment in Islamic Sukuk

Duqi

Al‐Tamimi

2019

QRFM

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“…The dollarisation, in this manner, increased the demand for foreign currency in the open market and there by led to the depreciation of Rupee. To avoid importing inflation the SBP had to defend the Rupee by increasing the return (interest rate) on domestic assets [Mirakhor and Zaidi (2006)]. Thus the exchange rate depreciation, a component of exchange market pressure, led to increase in interest rate.…”

Section: Causality From Exchange Market Pressure To Interest Ratementioning

confidence: 99%

Instrument of Managing Exchange Market Pressure: Money Supply or Interest Rate

Khawaja¹,

Din²

2022

pdr

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Exchange market pressure (emp) reflects disequilibrium in money market. The traditional approaches used to examine the disequilibrium in money market include the monetary approach to balance of payments and monetary approach to exchange rate. Under the former approach the variation in foreign reserves helps restore the equilibrium while under the latter one the change in exchange rate does the needful.1 The idea of this study stems from the fact that under the managed float exchange rate regime, changes in foreign reserves or changes in exchange rate in isolation are not a sufficient guide to characterise the external account situation of an economy. For example, exchange rate depreciation can be partially avoided or at least delayed if the central bank injects foreign currency in the forex market by letting its foreign reserves deplete. Alternatively, central bank can build up foreign reserves by purchasing foreign currency from the market against domestic currency. Such intervention would curb the exchange rate appreciation demanded by fundamentals. Therefore, focus on either of the two, that is, movement in exchange rate or variation in foreign reserves, to the complete exclusion of the other, is bound to portray a misleading picture of the external account situation. Given the foregoing a composite variable, that incorporates changes in exchange rate as well as variation in foreign reserves, over a certain period, is needed to characterise the condition of external account. The requisite composite variable has been developed by Girton and Roper (1977) as ‘simple sum of exchange rate depreciation and variation in foreign reserves scaled by monetary base’. They refer to it as exchange market pressure (emp).

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“…One is thus forced to believe that the foreign currency denominated private deposit accounts allowed in 1991 have something to do with this difference. Mirakhor and Zaidi (2004) observe that as per SBP policy requirement, commercial banks are required to sell the foreign exchange deposited with them to SBP at a premium at the end of each working day. This implies that the SBP supplies extra short term excess reserves for the banking system, thereby enabling them to disburse more credit if and when required than would otherwise be possible for the banking system.…”

Section: E-12mentioning

confidence: 99%

The Reserve Equation and the Analytics of Pakistan’s Monetary Policy

Hassan¹

2011

LJE

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This paper deals with the computation and analysis of some fundamental reserve aggregates and associated monetary statistics, which impart important information regarding the design and conduct of monetary policy at the State Bank of Pakistan (SBP). Specifically, we compute the data series for borrowed, unborrowed, free, and drainable reserves using balance sheet data published by the SBP for the period 1985-2009. Results show that Pakistan’s monetary policy revolves around managing the exchange rate while using the t-bill rate as a key policy instrument. However, the value of the t-bill rate is both incorrectly and sub-optimally related to macroeconomic fundamentals rendering monetary policy time inconsistent. This hinges on the finding that, since 2000/01, the SBP has targeted the net free reserves of the banking system at 4 percent of total private deposits. Among other observations, we find that the scope of open market operations as a tool of monetary policy remains limited and that this limited role of open market defenses derives from the concern of the central bank to sterilize its own foreign exchange reserves. Furthermore, the growth rate of unborrowed plus drainable reserves bears a strong negative correlation with the annual average rate of inflation, which, on account of the former being consistently negative since 2005, implies that neither the government nor the SBP have an overriding concern for controlling inflation.

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Foreign Currency Deposits and International Liquidity Shortages in Pakistan

Cited by 9 publications

References 16 publications

Factors affecting investors’ decision regarding investment in Islamic Sukuk

Factors affecting investors’ decision regarding investment in Islamic Sukuk

Instrument of Managing Exchange Market Pressure: Money Supply or Interest Rate

The Reserve Equation and the Analytics of Pakistan’s Monetary Policy

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