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An individual who acts as the counterparty in a swap agreement for the fee (called a spread).
These are the market makers for the swap market. Because swap arrangements aren't actively
traded, swap dealers allow broker to standardize swap contracts to some extent.
Related Terms
• Broker-Dealer
• Market Maker
• Market Maker Spread
• Price Swap Derivative
• Spread
• Swap
• Swap Bank
• Swap Spread
• More Related Terms
A swap is a contract in which two parties engaged in transacting a deal agree to exchange
their respective cash flows or financial assets on which they have decided to trade at
Forex.
These are private management between parties to exchange cash flows according to some
pre-arranged formula. The parties to the swap contract are known as counter-parties. In
swap, one party agrees to exchange his set of selected currency pair or cash flow with the
pre-determined set of cash flows of the other party.
For example, one party is currently receiving cash flow or currency at the decided value
from one investment but like to have cash flow from other type of investment. In such
case, swaps are used to exchange the source of investment to have the cash flow or
currency pairs in terms of Forex to be exchanged within the support of the swap dealer.
Characteristics of swaps:
These are considered to be the special type of financial derivatives used by traders at
capital market to raise funds from their desired sources but they can be used at Forex
trading platform as well with relevance to the regulation of the Forex trade.
• Swaps are not subject to the regulations like futures and options.
• The swaps are bilateral agreements and the potential default risk is there. The swap
dealer can provide a counter-guarantee.
As the swaps are private arrangement between the parties, different types of swaps have
emerged over the years. Swaps are, in fact, a part of financial engineering and attempt to
cope with the requirements of a party.
The features of swaps helped a lot to traders to make arrangement required to make the
trading deals easily and transact the exchange of currency pairs in their desired manner.
In currency swaps, the cash flows of different currencies are swapped. Currency swaps
can be used by firms that operate in one currency but need to borrow in another currency.
For example, say a Company A ltd. And B Ltd. Want to borrow cash in $ and in £
respectively. But A Limited can borrow at cheaper rate than B Limited can borrow $ at a
cheaper borrowing capacity of the other company. The rationale for currency swap lies in
the fact that one borrower has a comparative advantage in borrowing in one currency,
while other borrower has an advantage in borrowing in another currency.
In currency swap, one party holds one currency and swaps it for another currency held by
the other party. The swap arises when one party provides one currency in exchange of
other. The purpose of currency swap is to arrange the funds denominated in other
currency.
At least one of the interest rates is variable, i.e. a floating rate, in the sense that the rate at
which interest payments will be made at a later date is not known. The most common
type of interest rate swap is known as 'Plain Vanilla' swap in which one rate is fixed and
the other rate is floating.
What is Economy of Pakistan:
Pakistan is a South Asian country that was established in 1947. Its neighboring
regions include India, Iran, Tajikistan, Afghanistan, and China. It is located along
the Arabian Sea and has a coastline spanning 1,046-kilometre (650 mi). The
mountain ranges of Karakoram and Pamir in the northern and western highlands
of the country include K2 and Nanga Parbat which are counted among the
highest peaks in the world. The major by-air gateways to Pakistan are
Islamabad, Karachi and Lahore. It can also be reached by train from India and
Iran. Pakistan’s main cities are Quetta, Gawadar, Peshawar, Sialkot, Multan and
Faisalabad.
Pakistan is a developing country and its economy is the world’s 27th largest
economy based on its purchasing power. However, the country remained
impoverished due to internal political disturbances and negligible foreign
investment, since independence. With rise in development spending by
Islamabad, the country’s poverty levels reduced by 10% from the year 2001 to
2007. The economy grew between 2004-07 due to rise in GDP from 5 to 8%.
This was largely due to development in industrial and services sector irrespective
of severe electricity shortfalls. However, the year 2007 witnessed a lot of political
and economic instability leading to depreciation of Pakistani rupee. The growth of
the economy was affected once again during the 2008 global economic
recession.
Pakistan is a South Asian country that was established in 1947. Its neighboring
regions include India, Iran, Tajikistan, Afghanistan, and China. It is located along
the Arabian Sea and has a coastline spanning 1,046-kilometre (650 mi). The
mountain ranges of Karakoram and Pamir in the northern and western highlands
of the country include K2 and Nanga Parbat which are counted among the
highest peaks in the world. The major by-air gateways to Pakistan are
Islamabad, Karachi and Lahore. It can also be reached by train from India and
Iran. Pakistan’s main cities are Quetta, Gawadar, Peshawar, Sialkot, Multan and
Faisalabad.
Economy in Pakistan
Economy—overview: Today, Pakistan's economy is in much better shape than it was ever before. Pakistan is poised to
catch China in terms of growth for the fiscal year of 2005-2006. In 2004-2005, Pakistan's economy grew by 8.4%, which is
one of the fastest in the region.Progress is taking place throughout society. Thanks to the widespread reforms introduced
by the President, Pervez Musharraf. Foreign companies are investing billions of dollars to pursue the opportunities of a
market of world's sixth largest population. A change is evident throughout the society.
GDP—composition by sector:
agriculture: 24.2%
industry: 26.4%
Labor force:
by occupation: agriculture 47% mining and manufacturing 17% services 17% other 19%
note: extensive export of labor mostly to the Middle East and use of child labor
Budget:
Industries: textiles food processing beverages construction materials clothing paper products shrimp automotive
Agriculture—products: cotton wheat rice sugarcane fruits vegetables; milk beef mutton eggs
Exports:
Imports:
commodities: petroleum petroleum products machinery transportation equipment vegetable oils animal fats chemicals
Economic aid:
recipient: $2.2 billion from all bilateral and multilateral sources (FY96/97)
Exchange rates: Pakistani rupees (PRs) per US$1—44.050 (January 1998) 41.112 (1997) 36.079 (1996) 31.643 (1995)
30.567 (1994) 28.1 (1993); note—annual average of official rate; parallel market rate is higher
If a prominent official from one of these parties is to be believed, the three parties have
agreed to continue the privatisation process and also to take short-term and long-term
steps to ensure a quantum leap for boosting the dwindling exports and to avoid fiscal and
external vulnerabilities.
The economic wizards of the three parties are also discussing steps to control the
yawning trade deficit by minimising the imports of luxury items, he said.
“Yes, all the three parties, including the PPP, PML-N and ANP, are evolving a consensus
namely the minimum common agenda, which includes achieving improved macro-
economic situation and controlling the galloping prices, especially of food items,” The
News quoted the person, said to be involved in the consensus-building exercise, as
saying.
He further said that the future coalition also agreed to refrain from further burdening the
masses by jacking up the POL prices, at least, in the remaining three months of the
current fiscal year.
The official said another challenge for the next government would be the consistent cash-
bleeding of major public sector institutions such as Wapda, Pakistan International
Airlines (PIA) etc as these two institutions were going to cause losses to the national kitty
of over Rs 100 billion in the current financial year.
The coalition partners are working out a strategy for tackling difficult and complex
issues, keeping in view their own manifestos and striving hard to evolve a consensus
among the ruling coalition partners.
Official sources in the countrys federal Finance Ministry said that the economy could not
be put back on the track without bringing our house in order. According to them, the
pattern of the 90s could not be followed to run this huge economy on which international
investors had invested their money by subscribing to bonds issued by Islamabad. ( ANI)
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Credit Policy & Research Division
October, 2009October, 2009UBL Research | 2
USD1.2billion disbursed in August’09
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USD755million may be utilized for budget financing
Original SBA augmented to USD11.4billion
•
USD1.4billion may be utilized for budget financing
Structural performance criteria delayed to June FY10
•
Harmonization of income tax and GST laws
•
Amendments to Banking Companies Ordinance
•
Elimination of electricity tariff differentials
•
Transition to the Treasury Single Account
Circular Debt to be resolved by end-August
•
PKR216billion in power company bank borrowings
•
PKR61billion in FATA receivablesPolicy interest rate should remain on hold until core
inflation shows further significant decline. Tight monetary stance would also help
contain price pressures from the more expansionary fiscal policy
Public sector domestic borrowing requirements will remain high
•Higher projected credit to public sector enterprises for resolution of the “circular” debt•
Increase in credit for commodity operations
Concern over prominence of subsidies in budget
Pakistan-watchers should not be misled by the country’s rosy economic growth figures. Pakistan faces fundamental
problems in the financial sector that are not presently being addressed, warned Mushtaq Khan, the Wilson Center’s
2005-06 Pakistan Scholar, at a May 23 event organized by the Asia Program.
Prior to late 1999, Pakistan was in the throes of an unsustainable cycle of borrowing and spending, which policy makers
were unable to halt. Following the October 1999 coup that brought him to power, General (now President) Pervez
Musharraf faced a bankrupt country as the IMF program in Pakistan was suspended and foreign exchange reserves fell to
dangerously low levels. There was a palpable urgency to revive the IMF reform program needed for debt relief, which was
essential after the freeze of foreign currency accounts in May 1998, following Pakistan’s nuclear tests.
In the aftermath of 9/11, Pakistan’s financial situation improved dramatically: remittances flowing into Pakistan soared, the
value of the Pakistani rupee appreciated, and a fiscal consolidation occurred as the ratio of Pakistan’s deficit to its GDP
decreased. As external financing surged, the government no longer needed to borrow from banks, which led banks that
were “flush with liquidity” to lend to the private sector. Although Pakistan started experiencing impressive economic
growth, Khan contended that this growth was (and is) based on “cheap credit, not economic fundamentals.” The Pakistani
economy is currently imbalanced because it is fueled by credit-driven growth, which in turn is stoking an already large
external deficit. The appropriate policy response in the banking sector is to tighten interest rates; however, both policy
makers and the economic elite strongly resist this step.
While Pakistan is not as vulnerable to abrupt capital flight as Southeast Asia or Latin America, the financial trends of the
Central Bank are disturbing because “any external shock has the ability to reduce or undermine the repayment capacity of
the private sector.” Fiscal reforms are lagging, while domestic debt servicing will soon create new fiscal pressures.
Despite high growth rates, fundamental problems such as excessive private sector credit and inadequate social
development are being masked by a political compulsion in Islamabad and Washington to display high growth levels.
Although Pakistan’s Achilles’ heel -- foreign exchange -- was resolved with 9/11, a false sense of security has stagnated
the delivery of critical fiscal reforms. In essence, the financial flows that resulted from 9/11 have done Pakistan a
disservice as they have melted the discipline in economic management that had been achieved in the two years prior to
9/11.
Commentator Andy Baukol agreed with Khan’s analysis that higher levels of external financing in Pakistan, post-9/11,
had allowed the financial sector to “avoid some of the difficult policy issues.” Baukol noted that the IMF had attempted to
streamline its conditionality to address the rapid credit growth. It remains to be seen how much Pakistan progresses in
privatizing the state banks, as international confidence ultimately lies in the ability of private, rather than state, banks to
efficiently manage their loan portfolios.
Shahid Javed Burki warned about the dangers of a consumption-driven rather than an investment-driven growth. Is
Pakistan heading for another economic shock, he asked, given that the management of the market in Pakistan is being
done not with economic fundamentals, bur rather by speculation? This speculation is not sustainable, Burki emphasized;
only a “large dose of structural reform” can save the situation.
The interesting point, Manuela Ferro added, is how these imbalances developed in Pakistan. What is the political
economy that leads to these cycles of boom-and-bust? Why are there no self-correcting mechanisms in the national
financial institutions? Ferro contended that the real Achilles’ heel in Pakistan is not the foreign exchange shortages Khan
emphasized, but Pakistan’s very slow social development.
Bhumika Muchhala, Program Associate, Asia Program, Tel: 202 691 4020
Robert M. Hathaway, Director, Asia Program
What was the state of investment in the last two years? The
government reports, at current prices, the Gross Fixed Capital
Formation (GFCF) declined 0.6 percent in FY-2010, after
recording a 5.5 percent increase in FY-2009.
The MoF agrees that the decline in FDI inflows was “in line with
the steep drop in global inflows of FDI”, which fell 32 percent in
2009 according to the estimates of the International Institute of
Finance (IIF). For the period July-April FY-2010, FDI totalled $
1.8 billion (b), as compared to $ 3.2 billion (b) in the like period
of FY-2009 — a decline of 45 percent.
“The CDM Executive Board has registered six projects (out of the 25)
which will generate 195 million dollars worth of foreign direct
investment (FDI),” Afridi said.Foreign companies invest in GHG
emission control in developing nations and swap these ‘carbon credits’
in home countries where this practice is too expensive and proves
uneconomical, Afridi explained.
Pakistan may get FDI worth $1.7bn from 120 CDM projects: minister
The Following User Says Selma Shirazi (06-29-2010)
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LAHORE: Chief Minister Punjab Mian Shahbaz Sharif has said the
Join Date: Aug 2009 Punjab government is working on a comprehensive project of solid
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He said the provision of potable water to people was the top priority of
Thanked 308 Times in 249 Posts the government for which record funds had been allocated. He said
that an agreement was being signed with the Istanbul Municipality on
solid waste management in Lahore, which would bring about a visible
change in the sanitary system in the provincial metropolis. He said that
apart from middle and long-term policies in the sector, optimum
utilisation of available resources would have to be ensured for
improving the existing situation.
The chief minister said the Punjab government was utilising all
possible resources for the rapid development of the province as well as
providing basic amenities to the citizens. He said that special attention
was being paid to Solid Waste Management and provision of potable
water to the people.
He said the Punjab government had allocated Rs. 9.5 billion for the
sector which would be utilised for providing potable water and drainage
facilities in urban and rural areas. He said that 54 percent funds would
be utilised in rural areas. He said that a sum of Rs. two billions had
been allocated in the next fiscal year for the construction of new water
supply schemes besides improvement existing ones in areas of
brackish water.
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He said, that the present government has extremely competent persons, but problems are
much larger. There should be a task force headed by the Finance Minister consisting of
very competent persons in government. Task force should be small who should work to
put in place the mechanisms that should redeem the situation in maximum 4 months.
He said that we should stand still on excessive borrowing by government. If the
government do not take corrective measures there is a risk of default. Task force should
slow down the pace of excessive borrowing. In context of stand still, 4 things needs to be
done. Pass an Economic recovery act. The principle feature of this economic recovery act
should be to balance the budget after a transition period. This act needs high level of
support, otherwise it can not be done.
Mr. Aftab Ahmed Khan reiterated that right from the 50s we have a "Khairati economy"
he said that the conditionalities are meant to structure the political system of a country in
a way perceived by the foreign masters. He said that after the breakdown of Bretton
Woods System the betterment of the economy of the development countries that was
meant to be original goal of IMF has lost its significance.
Now by extending the money to the third world IMF spell out in clear term the economic-
cum-political structure that they require but he said that there is no use blaming them.
The concept of economic sovereignty has little meaning in the present world order
context. We should be more self dependent, more over some of the IMF's conditionalities
are very good for the economy if pursued in good spirit and with a logical perspective.
He was of the view that we have kept the productivity of the country very low in the
scheme of priority. Even the private sector has not done much in this regard. The remedy
to freeing ourselves from the foreign shackles lies ultimately with us.
Dr. Asad Saeed, Research analyst SPDC, in his address stated that IMF agenda concern
structural adjustment. He was of the view that the economic policy should basically focus
on two aspects: (a) growth and (b) Equitable Distribution of benefits in the economy. He
said Pakistan needs strategic planning which means a thorough analysis of industrial
sector to generate the benefit of economy of scale, keeping in view the economic
spillovers inherent in this regard. We have huge differentials in borrowing and lending
resulting in low savings. IMF has failed to improve this situation. He further stated that
tariff reduction unless coupled with strategic planning would lead to cost push inflation.
Commenting on some of the steps needed to revive the economy, Mr. Asad said that
military budget should be reduced, agricultured tax imposed and statistical data should be
collected to make the research meaningful.
Dr. Abdul Wahab, Director IBA said that affluence of the masses is contrary to the
depressing state of the economy that afflicts the country. The living standards our leaders
match those of the richest state of the world. This is in harsh contrast to the economic
quagmire that is facing us. He was of the view that devaluation is a plot against Pakistan
and dangers of it should be fully kept in mind before implementing it.
Mr. Feroz Ansari, Treasury Head Emirates Bank International, said that money pouring
in is not the main problem but how we utilize the money is the key issue. The short
sighted policies of our leaders give a blow to our economy. IMF polices are basically anti
inflationary the basic criticism of IMF conditionalities is their blind imposition of dictates
governed by capitalistic system without any tangible benefits coming by. With about 1
billion in foreign reserves how we are going to pay our liabilities is a big question. Mr.
Ansari was of the view that even if we get a moderate response to the PM debt retirement
scheme we could be in a position to negotiate with IMF. The negative political overhang
is the main issue in Pakistan