The INR BDT spot exchange rate specifies how much one currency, the INR, is currently worth

in terms
of the other, the BDT. While the INRBDT spot exchange rate is quoted and exchanged in the same day,
the INRBDT forward rate is quoted today but for delivery and payment on a specific future date. The
currency relationship between BDT and INR have been significant fluctuation about 1.300 to 1.175 down.
There has been a significant fluctuation in exchange rate of Bangladesh currency. That means there is a
floating exchange rate of BDT against INR. Floating exchange rate refers a country’s decision to allow its
currency value to change freely. The exchange rate for the BDT has dropped from 0.86 to INR to 0.77 in
one year and then again 2017 to 2019 it increased. The INR increased from 1.16 in 2016 to 1.30 in 2018.
Here the value of BDT begins to fall against INR from the year 2016 to 2018. So BDT remains unstable
during the period of 2016 to 2018. We can see here TAKA was depreciating over last three years. So,
there has multiple impacts. When the TAKA depreciates against RUPEE, our exports become cheaper,
inversely, imports become more expensive. As an example, if the value of Bangladeshis TAKA goes
down against the RUPEE, say from TK 1.16 per RUPEE to TK1.30, we pay more for imports in terms of
TAKA, but our garments become cheaper for customers. This simple example illustrates the reason why
Bangladesh let their currency depreciates, i.e. to boost exports and stimulate demand for the domestic
products. But the fall of the Taka will make Bangladeshi exports more competitive and India may in up
importing more from Bangladesh for obvious reasons. In 2016, a TAKA fetched 0.86 INR. That came
down to 0.84 INR to 1 TAKA in 2018. Despite up and downs over the last decade, it has however around
0.86 INR to 0.84 for 1 TAKA. We think the value of BDT fluctuate over time because of market and
government forces. The government intervention plays a vital role for the fluctuation of exchange rate of
BDT. Government use direct and indirect intervention to control currency value. In the case of direct
intervention government buy and sell currency in the foreign exchange market. By increasing interest
rates the Bangladesh Bank indirectly stimulates traders to buy the BDT. This process drives the value of
BDT higher in comparison to INR. As the value of BDT strengthens against INR, BDT’s current account
decrease. This appreciation of the RUPEE will make INDIAN imports more competitive. So India may
export less and import more from Bangladesh. The goods exported by Bangladesh will become more
expensive to India and demand for such goods will decrease. If the RUPEE raises further, Indian exports
to Bangladesh will fall.
 Infl ati on Rate
0.5
0.4
0.3
0.2
0.1
0
2016 2017 2018

Bangladesh India

According to the data we can observe a decreasing trend inflation rate of Bangladesh that was
respectively 6.7, 6.3 and 5.5 in the year 2016 to 2018. At same time we see an increasing trend the
inflation rate of India that was correspondingly 3.1, 3.8 and 4.1 in the year of 2016 to 2018. As a result,
the inflation rate over both countries we observe that rise consumer price index (CPI). Consumer price
index (CPI) of Bangladesh was 152.529 USD 161.226 USD and 170.164 USD in the year of 2016 to 2018
respectively. And consumer price index of India was gradually increased 155.945 USD, 159.829 USD and
167.598 in the year 2016 to 2018.

Consumer Price Index(USD)

0.4
0.38 0.39 0.39
0.3 0.28
0.26 0.26
0.2

0.1

0
2016 2017 2018

Bangladesh India
 Interest Rate Parity
0.5
0.4
0.38 0.39 0.39
0.3 0.28
0.26 0.26
0.2
0.1
0
2016 2017 2018

Bangladesh India

Interest rate parity is where the differential the interest rate and exchange rate between are equal
or almost equal between two countries. To the extent we consider the interest rate fluctuation that
is none as arbitrage free zone. As we can see from the graph that the exchange rate difference of
Bangladesh vs. India is 0.14 whereas the interest rate difference is 0.679 in 2016, and the
difference of exchange rate shifts to 0.23 whereas the interest rate difference is 0.032 in 2017. In
2018 the exchange between these two countries again become 0.16 when the interest rate
difference become 0.197. We can observe that the difference between the exchange rates of these
two countries are almost equal to the interest rate difference of these two countries as 100%
parity is not even possible. But as INDIAN and BANGLADESH have a strong bonding and
heavy financial dependency on each other, we can say interest parity exist there.

Purchasing Power Parity

0.5
0.4
0.3
0.2
0.1
0
2016 2017 2018

Bangladesh India
 Purchasing power parity is the number of units in a country’s currency require to buy the same
amount of goods and services in the domestic market as a foreign currency would buy in the
foreign market. From this graph, we can see in 2016, in Bangladesh we needed 0.379USD to get
a dollar worth of a product where in India, they needed 0.261USD for the same product. In 2017
in Bangladesh, we needed 0.391USD to get a dollar worth of goods or services, where in India
they needed 0.276USD. And in 2018 to get a dollar worth of product in Bangladeshi market we
needed 0.388USD where in India they needed 0.259USD. On average there is 0.11USD
difference between these two countries. In there year 2018, the inflation rate in Bangladesh was
5.5 while in India it was 4.1%. If we calculate the change in value of Indian currency

1+ ih
∆e= -1
1+if
1.055
= -1
1.041
= 1.3%

Therefore, we can claim that the Indian currency must differ by 1.3% for the purchasing power parity.

Bangladesh becomes friendlier towards foreign investments. The confidence of foreign

 investor in Bangladesh has increased, as the country has taken a series of measures to:
build up investment-friendly infrastructure; develop Agro sector provide necessary
facilities and financial backing to set up industries and simplify rules and regulations.
According to economists, stakeholders, and regulator, Bangladesh has been able to attract
the increasing amount of FDI thanks to consistent insurance policy support from the
government. The government enacted the Bangladesh Economic Geographical zone Act,
in 2010, to establish economic zones in areas to potentially attract more foreign
investment. After that minimum formalities are required which helps to reduce the
workloads of the foreign investors in a new country (Bangladesh) and moreover if two
countries has same interest rates of return investors will prefer Bangladesh due to its less
formalities. On the other hand, the laws of fund transfer, India-Bangladesh treaty makes it
safer for the investors as the government makes an intervention. We found out the
following from the regulations on foreign currency transfers/remittances:
FDI in Bangladesh When Remittance is Concern:

The role of the government has been changed from regulatory to promotional. As a result
of this policy, sanctioning and other procedures for obtaining different facilities and
services have been simplified. Export earnings, remittance and the foreign direct
investment (FDI) are three major sources of revenue of a least developed country.
Therefore governments are offering special packages to the foreign investors for
attracting FDI.

To facilitate investment:
 Remittance of profits to their head offices by foreign firms and companies operating in
Bangladesh.
 Issuance of shares to non-residents against investments for setting up industries in
Bangladesh. Remittance of dividends on such shares to the non-resident investors.
 Portfolio investment by non-residents including foreign individuals/enterprises in shares
and securities through stock exchanges in Bangladesh.
 Remittance of dividend on portfolio investment by non-residents through stock
exchanges in Bangladesh.
 Remittance of sale proceeds including capital gains of portfolio investments of
nonresidents through stock exchanges in Bangladesh.