Essay about Stress Testing

945 Words Nov 12th, 2015 4 Pages
Md. Mahafujur Rahman ID. NO. 0102123962

Commercial paper
In Bangladesh almost all the corporation collect fund from bank as long term or short term loan. But internationally this scenario is pretty much different. There corporation issue bond for long term financing and short term financing is mostly deepened on a instrument called commercial paper. Commercial paper market, popular around the world, is in a very early stage of development in Bangladesh. Eastern Bank Limited is the pioneer of CP in the country; it raised Tk. 500 million for ACI Limited in 2013. Since then, this market is growing very fast in our country
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Weighted average interest rate on CPs issued in the last three years stands at 10.34 per cent against the weighted average bank lending rate 13.06 per cent during the same period.
Secondly, there are limited investment opportunities in the financial market of Bangladesh. Often banks remain overburdened with surplus liquidity and heavily dependent on government securities amid low credit growth in the economy. The sharp fall in yields on the recently auctioned Treasury bonds highlight the need for additional investment instruments.
Problems in the field * There is no standard pricing mechanism for CPs in Bangladesh. Pricing is not in line with the risks inherent in different borrowers. All the borrowers are getting access to CP market at almost similar rates.

* Commercial paper is typically a discount security worldwide. But all the commercial papers issued so far in Bangladesh are interest-bearing only. One of the reasons may be that the borrowers are comfortable with interest-bearing bank loans.

* Secondary market for CPs does not exist in Bangladesh. Still, the rate remains at the lower level.

* The longer the maturity is on a note, the higher is the interest rate the issuing company must pay. The 9-month CP should contain higher interest rate than that of 6-month CP and vice versa. But, appropriate maturity premium is not being added to the pricing of

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