2017

TERM REPORT
On
TREASURY AND FUND
MANAGEMENT

Submitted to:
Sir Mehmood Afzal Khan

Submitted by:
Yousuf Razzaq Abbasi

ROLL No. MBKM 14-01

MBA (B&F) Morning

7th Semester

11/23/2017
 Acknowledgement
I want to thanks to ALLAH who is very merciful, sensitive about each and every activity of his
humans. Without His help I am unable to perform any task of my life.

All respect to our Holy Prophet HAZRAT MUHAMMAD (peace be upon him) who brought
the light of knowledge when all humanity was in darkness.

I am greatly thankful to my prestigious institute IBF that made this learning opportunity a part of
our education, especially, Sir Mahmood Afzal who did not only guided me he also helps me a
lot during my learning session.

I appreciate and submit my earnest thanks to my affectionate parents, who are always with me
and support me back. I can never return them for their struggle for me but I will always try to
fulfill their expectations from me.

I am thankful to all my family members for their moral boosting and spiritual support during my
study.

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 Executive summery

This report is about the treasury and fund management any type of organizations but more of the
part of the report consist on the treasury and fund management in banks.

In this report you will find the information related to introduction to treasury and treasury
management functions. And also find out the information about departments and their functions
in the bank treasury that how treasury department done his task efficiently and effectively
through his efficient performance.

In this report you will find out the what is monetary policy and the role of treasury in its
implementation. And how money and capital markets work and there majors instruments.

Most important part of this report is contain treasury management operations and forward
contracts, future agreement, Bidding process of TBills and PIB, Bidding process of Ijarah Sukuk.

In this report Forward Rate Agreement and Options contract, Interest Rate Swaps also be
included. And Lastly, what is fund management, Mutual Funds and its different benefits discuss
and Different Types of Mutual Funds also included.

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Contents
INTRODUCTION OF TRESURY ...............................................................................................................5
TREASURY MANAGEMENT INCLUDE: ...................................................................................................6
Departments and their functions in the Bank Treasury..........................................................................9
ROLES OF TREASURY DEPARTMENT: .................................................................................................. 10
Interest, MONETARY POLICY AND ROLE OF TREASURY IN ITS IMPLEMENTATION .................................. 12
MONEY MARKET AND CAPITAL MARKET PLAYERS:.............................................................................. 15
Money Market: ............................................................................................................................. 15
Capital Market: ............................................................................................................................. 17
EQUITY DESK OF TRESURY, STOCK: .................................................................................................... 19
BONDS AND TYPES OF BONDS: .......................................................................................................... 20
MONEY MARKET OPERATIONS, INSTRUMENTS AND BIDING PROCESS (treasury operations, Banks): ..... 23
FOREIGN EXCHANGE MARKET AND DIFFERENT RATES ........................................................................ 30
Forward contract:............................................................................................................................. 34
FUTURE CONTRACT MEANING AND EXPLANATION WITH EXAMPLE:.................................................... 36
FORWARD RATE AGREEMENT: .......................................................................................................... 39
OPTIONS: ......................................................................................................................................... 41
SWAP RATE: ..................................................................................................................................... 44
MUTUAL FUND CHARACTERISTICS AND BENEFITS:.............................................................................. 47
Open ended and Close ended funds:.................................................................................................. 50
Different Types of Mutual Funds ....................................................................................................... 52
UBL Assets Allocations Products .................................................................................................. 52

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INTRODUCTION OF TRESURY
Treasure:

Noun

 Wealth or riches stored or accumulated, especially in the form of precious metals,

money, jewels, or plate.
 Wealth, rich materials, or valuable things.
 Anything or person greatly valued or highly prized
 This book was his chief treasure.

Verb
(used with object), treasured, treasuring.

 To retain carefully or keep in store, as in the mind.

 To regard or treat as precious; cherish.
 To put away for security or future use, as money.

Treasury

 A government department related to finance and taxation.

 A place where currency or precious items (gold, diamonds, etc) are kept.

Treasurer:

The head of a treasury is typically known as a treasurer. This position may not necessarily have
the final control over the actions of the treasury, particularly if they are not an elected
representative.

Management:

 The organization and coordination of the activities of a business in order to achieve

defined objectives.
 Management is often included as a factor of production along with? machines,
materials, and money.

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  According to the management guru Peter Drucker (1909-2005), the basic task of
management includes both marketing and innovation.
 Practice of modern management originates from the 16th century study of low-
efficiency and failures of certain enterprises, conducted by the English statesman Sir
Thomas More (1478-1535).
 Management consists of the interlocking functions of creating corporate policy and
organizing, planning, controlling, and directing an organization's resources in order to
achieve the objectives of that policy.
 The directors and managers who have the power and responsibility to make decisions
and oversee an enterprise.
 The size of management can range from one person in a small organization to
hundreds or thousands of managers in multinational companies.

University Treasury

RECEIPT (REVENUE) PAYMENT

Admission Fee Payment of

Annual Fee Salaries/Pension
Examination Fee Payment of SBF/BF
Donation Payment for paper checking
Grants From HEC Maintenance Charges
Grants From Gov/Fed/Prov Deposit with bank for
Income from contracts Expense
Income from Real State Miscellaneous Expenses

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TREASURY MANAGEMENT INCLUDE:
TREASURY MANAGEMENT

Treasury management (or treasury operations) includes management of an enterprise's holdings,

with the ultimate goal of managing the firm's liquidity and mitigating its operational, financial
and reputational risk.

 Liquidity Risk
 Operational Risk
Managing
Mitigating  Financial Risk
 Reputational
Risk

How to achieve objectives of treasury management:

1. Collection
means recovery of loans and repayment and payment on account of credit sale.
2. Disbursements
disbursement of loans and sale on credit sales.
3. Concentration
pooling of funds from various branches at centralized point like global treasury and
banks, centralized office of any other organization.
4. Investment
this is again very important function of any treasury. The amount which is excess with
the organization for a specific period of time, that is to be invested at some secured and
good paying return.
5. Funding
to meet the funding requirement treasurers manage funds for matching maturities. Funds
are also requires for making loans, credit sales and for expansion and continuation of
business.

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 Bank Funds

Bank own Funds Borrowed Funds

From SBP(ERF I-II)

Paid-up Capital
Commercial Banks
Retained Earning
Issuance of Bonds
Reserves
From customers

Important points:
6. The large firms may also include trading in Bonds, currencies financial derivatives and
associated financial risk management.
7. Most banks have Whole Department devoted to treasury management and supporting
their client’s needs in this area. E.g. Global treasury in HBL.
8. Until recently banks have the strong hold on the provision of treasury management and
products and services.
a) Highly seasoned treasury management functions are requiring in treasury.
b) Third party technology or treasury operation system are required.
c) Non-banking entities the term treasury management and cash management sometime
are used interchangeably.
d) In general companies’ treasury operations comes under the control of C.F.O., Vice
president/Director of finance or treasurer.

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Departments and their functions in the Bank Treasury
Treasury in the banks has the following desk:

1. Fixed income or Money Marker desk

2. Foreign Exchange Desk Various
3. Capital Market Desk Departments
4. ALM Desk in Bank
5. Transfer pricing or Poling Function Treasury

1: Fixed Income or money market Desk

Fixed income is devoted to buying and selling interest bearing securities for the short term.
Further, Money Market desk of treasury (H.O) is responsible for making placements of surplus
funds with the branches where needed or with the bank, where these are required. E.g. Repo,
reverse repo, call lending, call borrowing, discounting, floor, MTBs.

2: Foreign Exchange Desk:

It is responsible for buying and selling of currencies/foreign currencies.

3: Capital Market Desk

A Capital markets or Equities desk that deals in shares listed on the stock market. Capital market
also deals with securities having the maturity more than one year, & capital market desk deals
this market.

4: ALM Desk
An asses Liability Management (ALM) desk that manages the risk of interest rate mismatch and
liquidity.

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5: Transfer pricing or pooling function

A transfer pricing or pooling function that prices liquidity for business line (the liability and asset
sales teams) within the bank.

6: proprietary trading desk:

In the treasury conducts trading activities for the bank the bank own accounts and capital. E.g.
pension fund, endowment fund.

ROLES OF TREASURY DEPARTMENT:

The treasury department occupies a central role in the finances of the modern corporation. It
takes responsible for the company’s liquidity—ensures that a company has enough cash
available at all times to meet the needs of its primary business operations. It sounds easy, right?
In fact, it is not. To really meet the goal, a treasury department would need to perform the
following roles over time.
Treasury Role-1. Cash Forecasting

This is the beginning of all other roles carried on the operation of a treasury department. Dislike
the accounting staffs who handle the cash receipt and disbursement activities on daily basis,
treasury staffs need to draw all those accounting staff’s records), and compile it to generate a
cash forecast (short and long-range).
The forecast and all its components are needed to:

a) Determine if more cash is needed. If that is the case, then they can go on to plan for fund
inquiry either through the use of debt or equity.
b) Plan for investment purposes, if the forecast results in surplus and cash excess shows up.
c) Plan its hedging operations by using the information at the individual currency level.

Treasury Role-2. Working Capital Management

Major usage of company’s cash is in the working capital area. Working capital is a key
component of cash forecasting. It involves changes in the levels of current assets and current
liabilities in response to a company’s general level of sales. The treasurer should be aware of

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working capital levels and trends, and advise management on the impact of proposed policy
changes on working capital levels.

Treasury Role-3. Cash Management

Combining information in the cash forecast and working capital management activities, Treasury
staff is able to ensure that sufficient cash is available for operational needs.

Treasury Role-4. Investment Management

When the forecast shows some excess funds at, the treasury staffs are responsible for the proper
investment of it. Three primary goals of the role are:

a) maximum return on investment

b) matching the maturity dates of investments with a company’s projected cash needs; and
most importantly is
c) not putting funds at risk.

Treasury Role-5. Treasury Risk Management

The treasury staffs are also responsible to create risk management strategies and implement
hedging tactics to mitigate the whole company’s risk—particularly in anticipating

a) Market’s interest rates may rise and leave the company pays on its debt obligations; and
b) Company’s foreign exchange positions that could also be at risk if exchange rates
suddenly worsen.

Treasury Role-6. Credit Rating Agency Relations

A company may issue marketable debt. In this case a credit rating agency will review the
company’s financial condition and assign a credit rating to the debt. The treasury staff would
need to show quick responds to information requests from the credit agency’s review team.

Treasury Role-7. Bank Relation

A long-term relationship can lead to some degree of bank cooperation if a company is having
financial difficulties, and may sometimes lead to modest reductions in bank fees. The treasurers
should therefore, often meet with the representatives of any bank that the company uses to:

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discuss the company’s financial condition, the bank’ s fee structure, any debt granted to the
company by the bank, and foreign exchange transactions, hedges, wire transfers, cash pooling,
and so on.

Treasury Role-8. Fund Raising

Maintaining an excellent relation with the investment community for fund raising purposes, is
important—from the

a) Brokers and investment bankers who sell the company’s debt and equity offerings; to the
b) The investors, pension funds, and other sources of cash, who buy the company’s debt and
equity.

Treasury Role-9. Credit Granting

The granting of credit to the customers of the company also lies within the preview of treasury
department. This involves proper credit management policy of company under which credit
terms are formulated which suit the requirements and interests of the company. The treasurer has
to manage the amount of working capital locked up in account receive ales.

Treasury Role-10.IT systems

The department maintains treasury workstations that provide it with information about cash
holdings, projections, market conditions, and other related information.

Treasury Role-11.Management advice/or reporting:

It relates with regular monitoring of treasury actions.

Interest, MONETARY POLICY AND ROLE OF

TREASURY IN ITS IMPLEMENTATION
Interest:

The amount charged, expressed as percentage of principal, by a lender to a borrower for the use
of assets.

Monetary policy is the process by which the monetary authority of a country controls the supply
of money, often targeting an inflation rate or interest rate to ensure price stability and general

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trust in the currency.
Goals and Objectives of Monetary policy

a) Goals of a monetary policy are usually to contribute to economic growth and stability, to
lower unemployment, and to maintain predictable exchange rates with other currencies.
b) Monetary economics provides insight into how to craft optimal monetary policy.
c) Monetary policy is referred to as either expansionary or contractionary.

Tools for implementation of Monetary Policy:

There are four tools of monetary policy:

1. Open-market-operations

Buying and selling of government securities by the Fed/SBP. In open market operation SBP
sales and purchase securities either to suck (obtain) liquidity or pump (provide) liquidity.

2. Reserve Ratio (SLR and CRR)

The fraction of deposits that the Federal Reserve determines banks must keep on reserve. SBP
controls in the country/economy increases or decreases the reserve ratio requirement. Due to this
interest rate can be control.

3. Bank Discount Rate

The rate of interest set by the Federal Reserve/SBP that member banks are charged when they
borrow money through the Federal Reserve System. Discount rate is the rate at which SBP
discount 1st class bill of exchange of commercial bank to give them liquidity.

4. Specialized Credit/Finance
SBP through various schemes provides finance to various sectors of economy, Exports (part
I&II), SME, Agriculture and local Manufactured Machinery etc.

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 a) Two schemes of SBP for export finance:

ERF (PART ONE) ERF (PART TWO)

Pre-Post Shipment Pre-Shipment only

 Concessional rates Pre-shipment on the

 Export of value basis of previous
added items financial year
performance.
b) SME: Small & medium enterprises fund provides
c) Agriculture: The SBP pay difference to commercial banks (cost of fund).

Expansionary policy:

The federal reserve’s/SBP increasing the money supply and decreasing interest rates to increase
real GDP. Expansionary policy increases the total supply of money in the economy more rapidly
than usual.

Contractionary Policy:

Contractionary policy is intended to slow inflation in order to avoid the resulting distortions and
deterioration of asset values. Contractionary policy reduces the money supply in the economy.

Prime interest rate:

Benchmark interest rate used by banks as are reference point for a wide range of interest rates
charged on loans to business and individuals.

Restrictive monetary policy:

Federal reserve system actions to reduce the money supply, increase interest rates and reduce
inflation; a tight money policy.

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MONEY MARKET AND CAPITAL MARKET PLAYERS:
Money Market:
Money market is a mechanism for borrowing or lending of short term funds. The money market
is not a particular place but it is collective name given to the various institution that deals with
the short term.

Money market provides lending & borrowing facilities for the short term loans.

Role of Financial Institution in Money Market:

1. Central Bank (State Bank of Pakistan):

 Central Bank is the guardian of money market.

 It acts as a lender of the last resort.
 The vital role of Central Bank is to regulate volume of money by controlling the activities
of financial institution.
 Central bank has the position of axel-wheel upon which the whole money market
revolves (moves).

2. Commercial Banks:

 They collect surplus money from the individual & firms and lends it to individual &
firms for short terms.
 Commercial Banks act as dealers in short period loans.
 Commercial Banks also provide call loan (the loans which are allowed for a week or
even for a night)

3. Co-operative Banks:

 Co-operative banks are rendering great services in money market.

 Initially these banks are establishing for financing to agriculture sector but now they
are also serving to commercial sector as well.
 Cottage industry is also being financed by these banks.

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4. Discount Houses:

 In the development of money market Discount Houses are giving facilities of

discounting bill of exchange on behalf of others.
 They borrow from commercial banks, for their discounting activities.

5. Acceptance Houses:

 Accepting houses act as agent b/w importer & exporter and b/w lender & borrower.
 They accept bills drawn on merchants whose financial standing is not good/known.
 They also transaction in foreign exchange.
 For carrying out these activities they require to have large fund of their own. But now
a commercial bank have taken this facilities given services.

6. Bill Brokers:

 Bill Broker are individual & firms who themselves do not buy and hold any of the things
they are handle. They simply act as intermediary b/w lender & borrower, b/w the
purchaser & seller of treasury bills.
 They discount BOE at a nominal commission and rediscount the same bill from the
commercial banks.
 The difference b/w two discount rate is their income.

7. Saving Banks:

 Saving Bank are very important element of money market.

 Saving bank collect & pool together the scattered savings of the community.
 (Run commercially) they lends to traders & other small industries on short term basis.

8. Finance Corporation:

 Are working as a member of money market.

 They collect funds from general public and lend money to traders and industrialist on
short term basis.

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 Tarik Rasheed Pvt Ltd
GAN & SONS
EXAMPLES
Al-Meezan investment MGT Ltd
Continental Exchange Pvt Ltd

Capital Market:
Capital Market is a mechanism in which long-run financial instrument are traded.

These instruments include

 Shares
 Bonds
 Term Finance Certificates and
 Government Securities
 Capital Market provide medium and long-term funds ranging from 3 to 20 years.
 The leader of Capital Market is Central Bank.
 Capital Market generally through Stock Exchange.

Role of Financial Institution in Capital Market:

1. Central Bank:
 Central Bank is guardian of Capital market.
 Main function of Central Bank is to regulate money supply by controlling the
activities of Financial Institution.
 Central Bank have a vital role in capital and money market

2. Commercial Banks:
 Commercial Banks collect surplus money from the general public and uses these
funds (according to availability of funds) for purchasing of Government
Securities, investment Bonds, Shares of public limited companies etc.
 Role of Commercial Banks is very important in Capital Market.

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 3. Development Banks
 Development banks provide long term fund for the development of
 Agriculture industry.
 In Pakistan ZTBL & IDBP are examples
 They provide loans to agriculture and industry for relatively longer periods of
time.
 They play an important in Capital Market.

4. Investment Banks:
 An investment Banks receive deposits from their customers and other sources.
 They make investment in share and Term Finance Certificates and other long term
securities.
 Intention is to earn higher return.
 They also provide advisory services for Acquisitions and Mergers. Under writings
5. Insurance Companies:
 Insurance companies collect funds by issue of Life Insurance Policies, other
insurance policies to individual and Business concern.
 Insurance companies make long-term investment in bond Gov. Securities, Share
Of Companies & Real Estate etc.
 Insurance companies also provide long term debt to Policy holder as well.

Stock Exchange:

 Stock Exchange is an organized market where bonds, share, TFC’s are bought and
sold.
 Stock Exchange is very important institution in Capital Market, as it is physical
place which provides investment opportunities.
 Modern Information Technology has made stock, exchange accessibility to every
one doorstep.

6. Saving Centers:
o Saving center collect savings of the people.

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 o These institutions provide long term debt to Government for
development/defense project.
o These center are member of the capital market and play an active role.

7. Finance Corporation:
 Finance Corporation are working as a members of capital market.
 These corporations collect funds from general public and other sources and provide
medium and long term funds to business men and other needy people.

EQUITY DESK OF TRESURY, STOCK:

Definition of ‘Stock’
A type of security that signifies ownership in a corporation and represents a claim on part of the
corporation’s assets and earnings.

Types of stock:

1. Common stocks
C.S is well known, when people talk about stocks they are usually referring to this type.
Majority of stocks issued in this form.
C.S represent ownership in accompany and a claim on the portion of profits.
Investor get one vote per share to elect directors.
C.S entails the most risk.
Common stock usually entitles the owner to vote at shareholder’s meetings and to receive
dividends.
The stocks are floated in the market (Banks, Stock Exchange)

2. Preferred Stocks
Preferred stock generally does not have voting rights, but has a higher claim on assets,
and earnings than the common shares. For example, owners of preferred stocks receive
dividends before common shareholders and have priority in the event that company goes
bankrupt and is liquidated.
Preferred stocks further divided into these categories:

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 Cumulative Preferred Stocks
In this stock dividend in first year 5%, next year 10% which includes 5% dividend of first
year, third year 15%. (5%+5%+5%=15%)
Convertible Preferred Stocks
These are the stocks which can be convertible into common stocks after some times.
Preferred stock holder can redeem or convert into common stocks. Usually preferred
stocks are issued in first issue at the time of people.

3. Right Share of stock

These are giving to existing shareholders.
To have additional capital these are issued and amount is paid by these shareholders is
fixed.
Bonds are issued by
If the company does not receive amount against right
organization generally for
share, these can be floated to the public as fresh issue. a period of more than one
year to raise money by
borrowing.
These shares are issued on discount/premium basis.

4. Bonus Share
In lieu of cash dividend.
Bonus share are issued when company has problem of cash flows.
These are issued only to existing stock holder.
DR: Retained Earnings
CR: Paid-up Capital

BONDS AND TYPES OF BONDS:

Why investment is important?

Every individual needs to put some part of his income into something which would benefit him
in the long run. Investment is essential as unavoidable circumstances can arise anytime and
anywhere. One needs to invest money into something which would guarantee maximum returns

20
with minimum risks in future. Money saved now will help you overcome tough times in the best
possible way.

What are Bonds?

“Organizations in order to raise capital issue bond to investors which is nothing but a financial
contract. Where the organization promises to pay the principal amount and interest (in the form
of coupon) to the holder of the bond after a certain date (Also called maturity date).

Some bonds do not pay interest to the investors; however, it is mandatory for the issuers to pay
the principal amount to the investors.

What is Maturity date?

Maturity date refer to the final data for the payment of any financial product when the principal
along with the interest need to be paid to the investor by the issuer.

Characteristics of a Bond

 A bond is generally a form of debt which the investors pay to the issuers for a defined
time frame. In a layman’s language, bond holders offer credit to the company issuing
the bond.
 Bonds generally have a fixed maturity date.
 All bonds repay the principal amount after the maturity date; however, some bonds do
pay the interest along with the principal to the bond holders.

Types of bonds

Following are the types of bonds:

1. Fixed rate bond

In fixed rate bonds, the interest remains fixed throughout the tenure of the bond. Owing to a
constant interest rate, fixed rate bonds are resistant to changes and fluctuation in the market

2. Floating rate bonds

Floating rate bonds have a fluctuating interest rate as per the current market reference rate.

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 3. Zero interest rate bonds

Zero interest rate bonds do not pay any regular interest to the investor. In such type of bonds
issuers only pay the principal amount to the bond holder.

4. Inflation linked bonds

Bonds linked to the inflation are called Inflation linked bonds. The interest rate if inflation linked
bond is generally lower than fixed rate bonds.

5. Perpetual bonds

Bonds with no maturity dates are called perpetual bonds. Holders of perpetual bonds enjoy
interest throughout.

6. Subordinated bonds

Bonds which are given less priority as compared to other bonds of the company in cases of a
close down are called subordinated bonds. In case of liquidation, subordinated bonds are given
less importance as compared to senior bond which are paid first.

7. Bearer bonds

Bearer bonds do not carry the name of the bond holder and anyone who possesses the bond
certificate can claim amount. If the bond certificate gets stolen or misplaced by the bond holder,
anyone else with the paper can claim the bond amount.

8. War Bonds

War bonds are issued by any government to raise funds in cases of war.

9. Serial bonds

Bonds maturating over a period of time in installments are called serial bonds.

10. Climate bonds

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Climate bonds are issued by any government to raise funds when the country concerned faces
any adverse changes in climatic conditions.

MONEY MARKET OPERATIONS, INSTRUMENTS AND

BIDING PROCESS (treasury operations, Banks):

Money Market
Is a type of financial market for low risk, highly liquid financial instruments with short
maturities.
Money Market Operations
Are an integral part of the Bank's Treasury and serve as an avenue through which the Bank can
offload its excess liquidity by lending to other banks/financial institutions or meet its short and
medium term funding requirements by borrowing on short and medium term basis.

MONEY MARKET OPERATIONS

A) PRIMARY B) SECONDRY
MARKET MARKET
OPERATIONS OPERATIONS

A. Primary Market Operations

 The primary market constitutes the Government of Pakistan selling its securities
through the State Bank of Pakistan.
 Government securities such as Market Treasury Bills and Pakistan Investment Bonds
are generally sold through an auction process to authorized Dealers and banks.
 Presently, SBP has specified certain Primary Dealers to participate in these auctions
either with their own funds or on behalf of a customer (non-competitive bids)/other
bank (pass-through bids).

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The modes established by the government for selling the securities are explained in the
paragraphs as follows:
1. Auctions
a) Primary offering of securities is usually made through auctions.
b) The Primary Dealers interested in purchasing any given amount of newly offered.
c) Government securities submit bids (containing the tenor, amount and price) to SBP.
d) In addition, Primary Dealers are required to facilitate individuals and small
institutional investors for submission of their non-competitive bids to SBP (after opening
of their respective IPS accounts).
e) A quarterly schedule for the auction of MTBs and PIBs is published at the beginning
of each quarter.
2. Open Market Operations (0M0)
Government buys or sells securities which have already been issued or are to be issued
through the 56P to control the supply/demand of money in the economy. Where the
supply of money is to be expanded, SBP buys securities and consequently injects money
into the economy (i.e. in a reverse repurchase agreement) and vice versa.
B. Secondary Market Operation
The securities issued in the primary market are traded in the secondary market amongst the
financial institutions for their own requirement or for the requirement of their customers, either
with or without the involvement of brokers.
The following transactions are undertaken in the secondary market:

1. Repurchase Transactions (Repo)

Transactions in which securities are exchanged / surrendered against cash with an
agreement to repurchase the same amount of securities at a mutually agreed future date
and price are Repurchase or Repo transactions.
a) Securities serve as collateral for cash borrowing.
b) These are in effect short-term borrowings from other banks.

2. Reverse Repo
Is an agreement whereby the lender i.e. the Bank buys Government securities and resells

24
 the game amount of securities at an agreed price at a mutually agreed future date.
a) Securities serve as collateral against cash lending.
b) These are in effect short-term lending's to other banks.

3. Outright Sale/Purchase
Outright purchase/sale of transactions involves direct transfer of ownership rights of
underlying securities in exchange of cash.
The seller of the securities claims the interest accrued for his holding period and
forgoes/transfers the right to any future interest receipt on the security for a capital
gain/loss on the sale of the securities.

4. Discounting/Floor
In case of a liquidity crunch being borne/faced by the banking industry SBP may inject
funds into the bank via a reverse repo agreement.
example: overnight lending to bank (discounting). Maximum 3-days
Similarly, in case of excess liquidity in a bank(s), SBP may mop up the funds from the
bank via a repo agreement.
example: overnight borrowing from banks (floor). SBP sucking liquidity of banks.

5. Call Borrowings
This is a form of unsecured short-term borrowing in which the Bank obtains a fixed term
loan from other Banks/NBFIs at a predetermined rate;

6. Call Lending
This is form of unsecured short-term investment in which the Bank lends a fixed term
loan to other Ranks/NBFIs at a predetermined rate.

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Money Market Instruments
The investment portfolio of the Bank relating to money market comprises of all major type of
financial instruments currently available in the market. The investment portfolio of the Bank
comprises of:
 Treasury Bills (T-bills);
Money
 Pakistan Investment Bonds (PIBs);
 Sukuks; and
Market
 Term Finance Certificates (TFCs) Instruments

MARKET TREASURY BILLS (MTBs):

Market Treasury Bills (MTBs) are risk free debt instruments issued by the Government of
Pakistan. On behalf of the Government, the State Bank of Pakistan (58P) sells Treasury Bills by
means of auctions to Banks/DFIs designated as Primary Dealers.
Features:
The features of Treasury Bills are outlined below:
1. They are issued at discounted prices and redeemed at face value on the date of maturity;
2. They have a tenor of 3, 6 or 12 months;
3. They are zero coupon securities; and
4. They are issued in scrip-less (without physical) from.

Treasury Bills can be acquired by the Bank in any of the following ways:
1. From the Primary Market at the time of initial issue by SBP through auction; or
2. From the Secondary Market by acquiring directly from any counterparty or through a
broker.
At the time of their acquisition,

26
Treasury Bills are required to be classified in any of the following investment
portfolios (BSD Circular No. 10 of 2004 dated July 13, 2004):
1. Held to Maturity (HTM)
"The securities acquired by the banks/DFIs with the intention and ability to hold them up-
to maturity."
2. Held for Trading (HFT)
"The securities acquired by the banks/DFIs with the intention to trade by taking
advantage of short-term market/interest rate movements. Such securities are to be sold
within 90 days from the date of their classification as 'Held for Trading' under normal
circumstances."
3. Available for Sale (AFS)
"The securities which do not fall within the above two categories will be classified under
this category."
Treasury Bills can be utilized by the Bank in any of the following ways (subject to the
requirements of the investment portfolio in which they are placed):
1. Outright sale in the Secondary Market;
2. Undertake a Repurchase Agreement (Repo) in the Secondary Market or with SBP
through OMO/Discounting facility to obtain funds in case of a liquidity crunch; or
3. Hold the Treasury Bills until maturity to realize their face value.
IJARA SUKUKS:
Ijara Sukuks are risk free debt instruments issued by the Government of Pakistan. On behalf of
the Government, the State Bank of Pakistan (SBP) sells Sukuks by means of auctions to
Banks/DFIs designated as Primary dealer.
Features of Sukuks
1. They are issued either at face value or at discount or premium and are redeemed at face
on the date of maturity;
2. They have a maturity of three years;
3. They earn a floating coupon payment on a semi-annual basis; and
4. They are issued in scrip-less (without physical) form.
Sukuks can be acquired by the Bank in any of the following ways:
1. From the Primary Market at the time of initial issue by SBP through auction; or

27
 2. From the Secondary Market by acquiring directly from any counterparty or through a
broker.
At the time of their acquisition,
Sukuks are required to be classified in any of the following investment portfolios.
1. Held to Maturity
2. Held for Trading
3. Available for Sale
Once acquired,
Sukuks can be utilized by the Bank in any of the following ways (subject to the requirements
of the investment portfolio in which they are placed):
1. Outright sale in the Secondary Market to earn a capital gain;
2. Undertake a Repurchase Agreement (Repo) in the Secondary Market or with SPP through
OMO/Discounting facility to obtain funds in case of a liquidity crunch; or
3. Hold the Sukuks until maturity to realize their face value and earn coupon income on a
semiannual basis.
BIDING PROCESS OF MTB’S, PIB’S AND SUKUKS:

1. On a quarterly basis, SO announces the auction schedule for the offering of Treasury
Bills
via the Bloomberg Online Auction module.
2. The auctions of Treasury Bills occur on a fortnightly basis.
3. On auction date, the Dealer in the Front Office prepares and signs an Auction Bids Sheet,
based on the instructions of designated authorities (ALCO) Asset Liability Committee .
4. The Auction Bids Sheet specifies the bid price and amount for each tenor. In case of
pass-through bids, the Auction Bids Sheet specifies the name of the party on whose
behalf the primary Deal is to be executed.
5. Further, where the bidding is carried out on behalf of the Bank, the portfolio type
(AFS/HTM/HFT) is specified.
6. The bid is approved by the Global Treasurer and Chief Dealer, who sign on the Auction
Bids Sheet.

28
 7. The Dealer enters the bids in the Bloomberg Online Auction module on the basis of the
approved Auction Bids Sheet.
8. The approved Auction Bids Sheet along with the signed bid letter is forwarded to
TROPS, where it is filed for record purposes.

Declaration of Result, Deal Entry and Approval

1. SBP announces the auction results in the Reuters system, which is sent by the Front
Office to TROPS. The Verifier in TROPS opens the required securities' details in OPICS
which is further authorized by the Authorizer. This enables Dealer to enter the Deal in the
OPICS system against the security.
2. If the bid is accepted, the Deal for the purchase of the Treasury Bills is entered in the
OPICS system by the Dealer .as per the limit assigned to him/her by the Global
Treasurer.
3. Verifier in TROPS views the Deal screen on the system and performs an initial scrutiny
of the content by comparing the same with the Auction Bids Sheet.
The following is reviewed by the Verifier:
a. Deal Date
b. Value Date
c. Nature of Transaction
d. Deal Amount and Counterparty
e. Portfolio Type (HFT/HTM/AFS)
f. Dealer Identity
g. Transaction Rates
h. Product Code
i. Product Type
j. Cost Center
k. Security Details (Security ID, Issue Date, Maturity Date).
If the Verifier is satisfied with the contents of the Deal entered by the Dealer, the Deal is verified
in the system.

29
FOREIGN EXCHANGE MARKET AND DIFFERENT
RATES
OERVIEW:

 The basic Foreign Exchange (FX) trading involves buying/ selling of currency at one
price and the aiming to sell/ buy it at another price, to generate profit.
 The complexities of this activity lie in the uses to which the basis product is put and its
relation with other banking activities.
 Foreign Exchange is a high business due to the volatility of rates in the market, high
volume and value of transactions and the complexities of the operations.

Market Structure

The Foreign Exchange market is a worldwide network of buyers and sellers of currencies,
operating from the major financial centers of the world like New York, London etc. The market
does not tangibly exist anywhere but is linked by various modes of communication, such as
recorded Telephone Lines and Reuters/ Bloomberg Dealing system. Bank play an important role
in the FX market and therefore referred to as market makers.

 The buying and selling which is carried out with the Central bank, other bank or other
Market Participants within the country are called Local Purchases/ Sales and this market
is known as Local Market.
 Likewise, the transactions which are carried out with all the aforementioned institutions
but outside the country are called Foreign Purchases/ sales and the market is termed as
International Market.
 In Pakistan Exchange, Brokers are the persons/ firms/ companies approved by the
Financial Market Association (FMA) acting as middlemen for locating seller/ buyer for
the purpose of buying/ selling of foreign currencies in the local market.
Exchange Rate Quotations

All FX quotations consist of a base and quote currency. Exchange rates may be quoted directly
or indirectly. Quoting exchange rates with the Foreign Currency (FCY) taken as one unit and the
equivalent given in the local currency (LCY) is known as the direct quotation. For e.g. US$1 =

30
PKR 105. On the other hand, if the LCY is taken as one unit and the equivalent is given in the
FCY, it is known as indirect quotation. For e.g. the rate PKR 1 = US$ 0.009523 Banks usually
quote a two-way price in the market i.e. the rate at which they are ready to buy a currency (bid)
and the rate at which they are prepared to sell (offer).

The difference between the bid and offer rates is referred to as the spread or margin Spreads
fluctuate according to the demand and supply of the currency.

 Location of the market,

 Volume of transaction and
 The rating/ quality of the counter party
Narrow spreads occur in stable market conditions in an activity traded currency, where the
volume is high and offers exist to counter parties for large amounts. Conversely, higher spreads
will occur in volatile markets, where trading is thin and will be offered to low rated
counterparties and for smaller or off amounts.

Foreign Exchange Exposure

As per Foreign Exchange Manual, the Foreign Exchange exposure should be within the FEEL
(Foreign Exchange Exposure Limit) provided by the State Bank of Pakistan. The bank is
required to maintain its exposure within this limit.

State Bank of Pakistan has tied up the Foreign Exchange Exposure Limit to the paid up capital of
the banks. At present, the Foreign Exchange Exposure Limit for the Authorized Dealers is being
calculated at twenty percent of their paid up capital, with a maximum cap of Rs 3.5 billion.
Nevertheless, SBP reserves the right to set/ allocate the Foreign Exchange Exposure Limit for
any Authorized Dealers below the twenty percent of the paid up capital, based on the trends
observed in utilization of the limit during the year, which SBP reviews every year.

31
TYPES OF FOREIGN CURRENCY RATES:
Exchange Rate Definition

An exchange rate is simply the price of one currency in terms of another and is determined by
the conventional concept of demand and supply. The demand and supply is affected by various
factors, such as current economy situation,

 Seasonal flows
 Interest rates and
 Liquidity Market conditions prevailing in the Foreign Market.
Following are the different types of rates prevailing in the Forex Market.

1. Ready Rate
The price that is quoted for same day settlement of a currency in a ready transaction, by
convention, the value date of a ready transaction is the same day on which the deal is
initiated.
2. TOM Rate
The price that is quoted for next-working-day settlement of currency in a TOM
transaction, by convention, the value date of a TOM transaction is next working day after
the date of deal.
3. Spot Rate
The price that is quoted for settlement of a currency in a spot transaction, by convention,
the value date of spot transaction is two working days after the date of the deal.4
4. Mid Rates/ Foreign Exchange Revaluation Rates
Also known as the weighted average rates, these rates are quoted by the State Bank of
Pakistan on a daily basis on the Reuters’ Page.

IMPORTANT points:

According to instructions laid down by SBP, it is necessary for all the Banks/ Authorized
Dealers to mark to market their Foreign Exchange assets & liabilities (both on Balance Sheet
and Off Balance Sheet) on daily basis, using the mid rates/ foreign exchange revaluation
rates for different tenors which are broadcasted/ published by SBP on Reuters’ page on daily
basis.

32
5. Bid and Offer Rates
The rates quoted by the bank for the buying and selling of foreign currencies are referred
to as Bid and Offer rates respectively.
6. Cross Rates
When two currencies are involved to determine the rate of a third currency, it is referred
as cross rates. Most major currencies are quoted indirectly against the US Dollar,
therefor, a typical Dealer’s screen will show rates for the USD/ PKR, USD/ EURO etc.
For example, where a customer in Pakistan needs to pay a supplier in Germany, he will
wish to sell PKR and buy EURO. In this case, the PKR/ EURO cross rate will need to be
calculated from the quoted rates of USD/ PKR and USD/ EURO.
7. Forward Rate
A determined rate at which the dealers agree to exchange specified amount of currency at
some future specified date.
Forward rates are calculated by taking the spot exchange rate at contract date and adding
or subtracting the forward differential. The forward reflects the difference in interest rates
between the bases and quote currency.
8. Premium and Discount Rates
The currency of a higher interest rate country will be at a discount to the country of lower
interest rate country. Similarly; the currency of the lower interset rate country will be at a
premium in erms of the currency of higher interest rate country.
The premium or discount is expressed in points and the future rate is calculated by adding
or subtracting the point to or from the spot rate, depending on the type of quote.
9. Swaps Rates
A swap is the simultaneous buying and selling of a foreign currency in broadly equal
amounts with the same counterparty for two different maturities and at different exchange
rates. The pricing of a swap through the forward premium or discount is determined by
the differential in interest rates in the currrencies.

33
Forward contract:
Definition:

Forward contract is a private agreement between two parties giving the buyer an obligation to
purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in
time.

Explanation:

The asset often traded in forward contract includes commodities like grain, precious metals,
electricity, oil, beef, orange juices, natural gas but foreign currencies and financial instruments
are also a part of today’s forward contract.

Characteristics of forward contract:

1. By locking in the price now you eliminate the risk of wheat prices on the other hand if the
price rise latter you will get only but your contract enable or entitle you.
2. Forward contract are not the same as future contract.
3. Future and forward contracts both allow people to buy or sell an asset at the specific time
at a given price but forward contract are not standardized or traded on an exchange.
4. They are private agreements with terms that may vary from contract to contract and also
settlement occurs at the end of a forward contract.
5. Forward contracts parties can to bear more credit risk then the parties to future contract.
Then there is always a chance that a party to a forward contract will default and the
harmed party only recourse may be to sue.
6. As a result, the forward contract prices often include premiums for the credit risk.

EXAMPLE .1 (Physical Commodity Future Contract)

In forward contract on date is 31.10.16 the rate is Rs 1200 per month. The quantity is 500
mounds. The delivery date is 30.01.17 the contract between buyer and a seller on delivery date
the three situations will create:

1. Rate (Spot) Rs 1200 settlement have been done easily both are agreed and transaction
easily done.

34
 2. Rate (Spot) Rs 1100 in this situation buyer face the loss Rs 100 because the contract is
1200 buyer have been paid.
3. Rate (Spot) Rs 1300 in this situation the buyer have the favour because the contract is
done in 1200 and the buyer has been favour of 100.

EXAMPL .2 (Currency Forward Contract)

Bank HBL Multan.

L/C # 0786

L/C amount 1.700$ (millions)

Date of L/C 31-10-2016 DATA

Date of L/C expiry 30-01-17

Date of Forward Booking Contract 31-10-16

Date of expiry 30-01-17

Spot Selling Rate is 105.80 Rupees

Spot Buying Rate is 105.20 Rupees

Book Forward Rate is 106.60 Rupees per Dollar RATES

(1 month Optional Period from 30-12-16 to 30-01-17)

However, three situations can be occurring in future as follows:

a) Contract utilized with in expiry date

Documents received on date 21-01-2017
17, 00,000*106.60= Rs. 1, 81,220,000
Debit Customer A/c Rs. 1, 81,220,000
Credit Foreign bank Rs. 1, 81,220,000

35
 b) Forward rate will be set off un-utilized
Documents received on date 31-01-2017. You can’t apply forward booking rate (106.60)
so, spot buying rate (106) will apply as:

Forward booking rate was 106.60 – Spot buying rate 106.00 = 0.60,
1700000 * 0.60 = Rs.1020000
Debit Importer A/c Rs.1020000
Credit Income A/c exchange earning Rs.1020000

c) Forward rate will be set off un-utilized

Documents received on date 31-01-2017. You can’t apply forward booking rate (106.60)
so, spot buying rate (106.80) will apply as:
Forward booking rate was 106.60 – Spot buying rate 106.80 = 0.20,
1700000* .20 = 340000
Debit Expense A/c exchange earning Rs. 340000
Credit Importer A/c Rs. 340000

FUTURE CONTRACT MEANING AND EXPLANATION

WITH EXAMPLE:
FINANCIAL CONTRACT:

A financial contract obligating the buyer to purchase an asset or the seller to sell an asset such as
physical commodity or a financial instrument at a predetermined future date and price.

FUTURE CONTRACT DEFINITION:

Future contract is a financial contract that obligating the buyer to purchase an asset ( or the seller
to sell an asset) such as physical commodities or financial instruments at a predetermined future
prices.

Explanation:

 In future exchange future contracts are taken place.

 Buyer and seller open an account in future exchange through broker.

36
  Both parties of future contract must fulfil the contract on the delivery date that is
The seller delivers the underlying asset to the buyer or if it a cash settled future
contract then cash is transferred from the future trader who sustain.
 To exit the commitment prior to the settlement date to the holder of a future position
can close out its contract by the obligation by taking opposite position on another
future contract on the same asset and settlement date.

Characteristics:

1. The future contract has the following characteristics:

2. Future contract details the quality and quantity of the underlying asset.
3. They are standardized contracts.
4. Some future contracts may call the physical delivery of the assets while other are settled in
cash.
5. The future markets are characterized by the ability to use very high leverage relative to stock
market.
6. Futures can be used either to hedge or to speculate the price movement of underlying assets.
7. Long => (BUYER) the party agreeing to buy the underlying assets in the future the buyer of
the contract is said to be long.
8. Short => (SELLER) the party agreeing to sell the assets in future the seller of the contract is
said to be short.
9. Future exchange requires both parties to put up in initial margin (performance bond).
10. Future prices will change generally daily, the difference in the prior agreed future price and
the daily future price is settled daily also.
11. The exchange will draw money out of one party’s future margin account and put it into the
others so that each party has the appropriate daily profit and loss.
12. If the margin goes below as a certain value, then margin call is made and the account owner
must replenish the margin account.
13. Above process is called Marking to Market.
14. Thus, on delivery date the amount exchange is not specified in the future contract but the
spot value (all gains/profits and losses have already settled in the contract)
15. Both parties of the future contract must fulfil the contract on the delivery date;

37
16. The seller delivers the underlying asset to the buyer or if it a cash settled future contract, then
cash is transferred from future trader who sustain a loss to one who made a profit.
17. To exit the commitment prior to the settlement, date the holder of a future position can close
out its contract obligation by taking opposite position on another future contract on the same
asset and settlement day.
18. The difference in the future price is then a profit or a loss.

Example:

A transaction is done in future exchange between seller and a buyer. In this example the buyer
and seller are agreed in:

BUYER SELLER
FUTURE
US $ 12000 EXCHANGE US $ 12000
E

BUYER STRIKE PRICE US $ 20 SELLER

On the date of 20.16.2016 the $ 20 per Mounds,

Then on the date of 21.16.2016 the $ is 19.50 per Mounds
Then transaction are recoded as:

DR: Buyer A/C $ 0.50M

CR: SELLER A/C $0.50M

On the date of 22.10.2016 the $ is 20.50 per Mounds the transaction is done as:

DR: SELLER $1

CR: BUYER $1

The days has been passed the date 28.16.2016 the $ is 29 per Mounds and
so on transaction have been done. Loss will bear by the sell nine dollar per Mounds.

38
FORWARD RATE AGREEMENT:

DEFFINATION:
FRAs are similar to forward contracts where one party agrees to borrow or lend to a certain
amount of money at a fixed rate on a pre specified future date.

CHARACTERISTICS:

It has the following characteristics or operates way:

1. The party that is borrowing money under FRAs agreement has a long position and the
party that is lending money has a short position in FRAs.
2. FRAs are usually cash settled, that is the money is not actually lend or borrowed. Instead
the forward rate specified in the FRA is compared with the current libor rate. If the
current libor rate is greater than the FRAs, then the long is effectively able to borrow at a
below market rate.
3. The long will therefore receive a payment based on the difference between the two rate.
4. If, however the current labor rate was lower than the FRA rate then long will make be
payment to the short. The payment ends up compensating for any change in interest rate
since the contract date.
5. FRAs can be based on different periods and are coated in terms of months to settlement
date and the months to completion of interest period. For example: The settlement date is
after 60 days (2 Months) and then there is interest period of 90 days (3 Months). The
contract will complete after a total period of 2+3=5 Months. This FRA will be referred to
as 2*5 FRA.
6. FRA generally used to lock in interest rates for transactions that will take place in the
future.
7. Notional Value: It is the total value of leverage position assets .For example $5000000
million and FRA that is hedge $3000. This term commonly used in auction, future and
currency market because of leverage where in a small amount of invested money can be
controlled a large position the market.

39
 8. CPI is the Consumer Price Index number and the SPI is Sensitive Price Index number.
Both are used in as a benchmark in economy.
Reference Rate:
It is the rate that determines the payoffs in a financial contract and that is outside the
control of the parties to the contract. It is often same form of libor rate but it can take
many forms such as CPI, SPI or House Price Index or an unemployment rate.
9. FRA are cash settled with the payment based on the net difference between interest rate
(FRA) and the reference rate (libor Rate). For example, that is RR is 4% and FRA is
3.5%.
10. If the investment is being purchased you can hedge the risk that interest rate may fall
(which would increase the price of investment) by selling the FRA.
11. If the investment is being sold you can hedge against the risk of rate rising by buying the
FRAs.

NUMERICAL CALCULATIONS OF FRAs:

Calculations of payment at expiration of FRAs.

Numerical #1:

FRA = FRA Rate= 4%

R=Reference Rate=5%
NP=Notional Principle=$2500000
DATA
P=Period of contract= 181 days
Y=year (Number of days 360/365)=360 days

FORMULA
We know that: FRA payment = [(R-FRA)*NP*P/Y]*1/(1+R*P/Y)

So: $2500, 000 x ((0.05 - 0.04) (181/360)) = $ 12259.36

1 + 0.05 (181/360)

The answer is positive that indicate buyer pay to seller.

40
NUMERICAL #2

FRA=FRA Rate= 5%
R=reference rate=4.5%
NP=Notional principle=$2000000
P=Period of contract= 181 days
Y=Year (Number of days 360/365) = 360 days

FORMULA

We know that:

FRA payment = [ (R-FRA)*NP*P/Y]*1/(1+R*P/Y)

So: $2000,000 x ((0.045 - 0.05) (181/360))

1 + 0.045 (181/360)

= -$4915.7

Negative sign will show seller make payment to buyer.

OPTIONS:
Option is a right to buy and sell a stated no. of shares of a security with in a specified period at
specified price.

 Put option (sell)

 Call option (buy)

Explanation:

 Put and call options expand the opportunity available to investors, making available
risk/return combination that would otherwise impossible or that would improve the
risk/return characteristics of a portfolio.

41
  An investor can establish a position with option for much smaller investment than
required with security itself.
 Buyer max loss is known in advance if an option expired worthless.
 At the most buyer can loose the price of the option.
 An option provide leverage……the chances to magnify the percentage gain.
 Using option on the market index, an investor can participate In the market movement
with a single trading decision.

Call option:

Call option is the security that gives the owner right to buy hundred shares of stocks at a certain
price by a certain date.

The certain price called a strike price and the certain date is called the expiration date. A call
option is called a call, because the owner has the right to call stock away from the seller. It is also
called option because the owner of call has the right but not the obligation to buy the stock at the
strike price, in other word the owner of the option also known as long a call does not have to
exercise the option and buy the stock, if buying the stock at the strike price is un preferable, the
owner of the call option can just let the option expire worthless.

A call option is defined by 4 characteristics:

1. There is an underlying stock.

2. There is an expiration date of the option.
3. There is a strike price of the option.
4. The option is the right to buy the underlying stock, this contract to put option which is the
right do sell an underlying stock.

Example:

Strike option: $40 per share

Period: 6 months

No. of stocks: 100 stocks

Option 01: market price 40, the buyer purchase directly from market at 40.
42
40*100 = $4000

If the price increase by 50 then 50*100= 5000

5000-4000= 1000 ; 1000/4000= 0.25*100= 25%

Option 02

No direct investment from market, just paid premium of $125 for option then when the rate
increases the buyer of option get max gain from little investment,

$1000/$150*100 = 800%

Option 03

Option can be sold in the market if share appreciate the value of the call will also appreciate.

Call option holder can easily sell the call in the secondary market to another investor who wishes
to speculate on shares because listed options are traded continuously.

Most investors trading put and call and do not exercise those options although there are valuable
instead they simply sell them on the open market, exactly as they would sell the common stock if
they owned it.

Three courses of actions possible:

1. The call option may expire worthless, assume that pair of coke fluctuates up and down
but is at $39.5 on expiration date.
2. The call option gives the buyers(owner) the right to purchase coke at the $40 per share,
but this would make no sense, when coke can be purchased from the market at the rate of
$39.5 per share invested of $40.
3. The option may be exercised the coke shows appreciated shares call option holder will
exercise option by paying $4000, and receiving hundred shared although the current
market price of coke share is $45 shares.

Advantages of call and put options:

1. Smaller investment
2. Full amount of investment is not required
43
 3. Knowing the max loss in advance
4. There is a stock/market involve in the option transactions to make them secure.
5. An expansion of the opportunity set available to investor
6. The major differences with other contract is that settlement of their contract is in cash
7. Stock prices can go up to infinity, here the call option holder can earn much more than
his initial small investment, paid as price of the option or premium

Disadvantages of call and put option:

1. Call and put option can be used for speculative purpose also
2. There contracts are based on the expectations of buyer and seller (writer)
3. Seller and buyer thoughts/expectations are in different directions.
4. Call options holder buyer expect price will move upward.
5. Put option holder(seller) expect that price will move downward.

SWAP RATE:
Definitions:

An interest rate swap is a contractual agreement entered into between two counter parties under
which each agrees to make periodic payments to others for an agreed period of time based upon
notional amount of principal.

An interest rate swap IRS is a financial contract between two parties exchanges or swapping a
stream of interest payments for notional principal amount on multiple oceasions during a
specified period.

Uses of interest rate swap, IRS:

 IRS have several potential uses for corporate entities, risk manager and banks etc. etc.
some of which includes.
 Switching of one rate of interest to another to alter interest rate/cash flow profile.
 Raising less expensive loans
 Cost effective method of managing interest rate risk
 Avoiding charges for easily termination of loans

44
Characteristics/ modus operandi:

 Usually under IRS one party pays fixed interest rate on the notional payment amount at
pre-determined intervals (per month, quarterly, annually)
 While the other party pays the floating interest rate like KIBOR, LIBOR.
 IRS is undertaken to alter the interest rate risk profiles of the parties.
 It involves numerous variations of changing the profile from fixed to floating, floating to
fixed, floating to floating etc.
 IRS provides a way for businesses to hedge their exposure to change in interest rate.
 If a company believes long term interest rate are likely to rise it can hedge its exposure to
interest rate changing by exchanging its floating rate payment for fixed rate payment.

How it works:

 The most common type of interest rate swap is in which one party A agrees to make
payment to party B based on the fixed interest payment.
 Party B agrees to make payment to party A based on a floating interest rate.
 The floating rate is tied to a reference rate (in almost all case) the rate is LIBOR.

Example 1:

 Assume that Amir owns investment for US dollar 1000000 that pays him LIBOR + 1%
every month as LIBOR goes up and down the payment Amir receives changes.
 Now assume that Yasir owns an investment for dollar 100000 that pays him 1.5%
eveymonth the payment he receives never change.
 Amir decides that he would lock in a constant payment (fixed)
 Yasir decides that he would take a chance on receiving high payment (variable)
 So, Amir and Yasir agree to enter into an interest rate swap payment agreement/contract
 Under the term of their contract, Amir agree to pay Yasir LIBOR + 1% per month on an
investment amount per principal amount 1000000 (called the notional principal or
notional amount)
 Yasir agree to pay Amir 1.5% per month on us dollar 1000000 notional amount.

45
Scenario A:

LIBOR is 0.25+1% = 1.25%

 Amir receives a monthly payment of $12500 from his investment (1000000*(0.25+1))

 Yasir receives a monthly payment of $15000 from his investment (1000000(1.5%))
 Now under the term of swap agreement Amir will pay to Yasir 12500 and Amir receive
from Yasir $15000
 The two transactions partially off-set each other and Yasir will pay Amir the difference of
$2500 (15000-12500).

Scenario B:

LIBOR is 1%+1%= 2%

 Now Amir receives a monthly payment of $ 20000 from his investment

($10,00,000*1.5%)
 With LIBOR at 1% Amir is obligated under the term of the swap to pay Yasir $2000000
and Yasir still has to pay Amir $15000
 The two transaction partially off-set each other and now Amir will pay to Yasir the
difference between swap interest payment that is $5000 (20000-15000)

Conclusion:

 Note that the interest rate swap has allowed Amir to guarantee himself a $15000. Payout,
if LIBOR is low Yasir will pay him under the swap.
 If LIBOR is higher Amir will pay Yasir money either way he has locked in a 1.5%
monthly return on his investment
 Yasir has exposed himself to variation in his monthly return. Under scenario A Yasir
made 1.25% after paying Amir $2500
 Under scenario B made 2% after Amir paid him an additional $5000.
 Amir was able to transfer his risk of interest rate fluctuation to Yasir, who agrees to
assume the risk for the potential for higher returns.

46
Exiting a swap agreement (how to close out swap):

Sometimes one of the swap parties needs to exit the swap prior to the agreed upon termination
date. This is a similar to an investor selling and exchange traded future or option contract before
expiration there can be following ways to do this:

Buy-out the counter party:

Just like an option or future contract a swap has a calculable market value so, one party may
terminate the contract by paying the other this market value. However there is not an automatic
feature so, either it must be specified in the swap contract in advance or the party who want out
must secure the counter party consent.

Enter an off-setting swap:

For example company A from the interest rate swap could enter into second swap their time
receiving a fixed rate and paying floating rate.

Sell the swap to someone else:

Because swap have calculable value one party may sell the contract to a third party. (with
consent of the counter party)

Final remarks:

Swap are financial tool, if used properly can provide many firms with a method of receiving a
type of financing that would otherwise be un-available.

MUTUAL FUND CHARACTERISTICS AND BENEFITS:

Definition of fund:

“Fund is a sum of money safe or made available for a particular purpose”.

All the financial resources of a firm, such as cash in hand, bank balance and accounts
receivables.
Any change in these resources is reflected in the firm’s financial position.

47
Management
 The organization and co-ordination of the activities of a business in order to achieve
defined objective.
 According to management Guru (Peter Drucker 1909-2005)
 The basic task of management includes both marketing and innovations.

What is fund management?

Fund management is the management of cash flows of a financial institution. The fund manager
ensures that the majority schedule of the deposit coincide with the demand for the loan.
To do this the managers looks at both the liabilities and the assets that influence the ability to
issue credit.
Mutual fund:
Mutual fund is a pool of money (collective investment) belonging to a large group of investors
who entrust their money to fund manager/ asset management company (AMC) for making
prudent investment on their behalf.
Mutual fund can also be defined as
An investment vehicle that is made up of a pool of funds collecting from many investors for the
purpose of investing in securities such as stocks, bonds, money market instruments and similar
assets.
Characteristics of mutual funds:
1. Mutual funds are operated by money manager’s/ fund manager’s/ investment managers/
AMC who invest the fund capital and attempt to produce capital gain and income for the
investors.
2. The investments are made strictly in accordance with the investment policy and
investment objective laid down in the offering document of the fund. (FPI foreign
portfolio investment)
3. The ownership of the fund property vests in the investor and fund managers are entitled
to certain fee paid by the investor for managing the fund as trustee.
4. All the moveable & immoveable assets of mutual funds are vested with the trustees for
the benefit of unit holder, which means that the beneficial ownership of the assets of the
fund vest with the unit holder.

48
 5. The investment objective of a mutual fund, its policies restrictions & possible risk
involve in the investment is clearly disclosed and provided in the offering documents.
6. One of the main advantage of mutual fund is that they give small investors access to
professionally manage, diversified portfolio of equities, bonds and other securities, which
would be quite difficult rather impossible for an individual investor with a small amount
of capital.
7. Mutual fund usually has minimum investment required is Rs. 5000 (500 units)
8. In mutual fund unit holder can benefit from portfolio diversification by buying wide
range of securities.
9. Each unit holder/ share holder/ investor participates proportionately in the gain or loss of
the fund.
10. Mutual fund unit/ share are issued and can be purchased as needed at the fund current net
asset value per share/ unit (NAV net asset value) NAV of the unit is published in the
newspapers and is available on the website.
11. Every mutual fund publishes and offering documents that states its investment goals,
investments such as stocks or bond, post-performance, name of the fund manager, fee and
how it derives its return.
12. A potential investor can also examine the annual and semiannually reports. When
examining a mutual fund performance, consistency of return, year after year is normally
studied.
Mutual funds in financial market
(Benefits of mutual funds)
1. Professional investment management
When you buy a mutual fund, you are also choosing a professional money manager. This
manager will use the money that you invest to buy and sell stocks that he or she has
carefully researched. Therefore, rather than having to thoroughly research every
investment before you decide to buy or sell, you have a mutual fund's money manager to
handle it for you.
2. Diversification
One rule of investing, for both large and small investors, is asset diversification.
Diversification involves the mixing of investments within a portfolio and is used to

49
 manage risk. For example, by choosing to buy stocks in the retail sector and offsetting
them with stocks in the industrial sector, you can reduce the impact of the performance of
any one security on your entire portfolio. To achieve a truly diversified portfolio, you
may have to buy stocks with different capitalizations from different industries and bonds
with varying maturities from different issuers. For the individual investor, this can be
quite costly.
3. Low cost
4. Convenience/ flexibility
5. Total liquidity & Easy encashment
Another advantage of mutual funds is the ability to get in and out with relative ease. In
general, you are able to sell your mutual funds in a short period of time without there
being much difference between the sale price and the most current market value.
6. Life cycle planning
7. Investor information
8. Taxation benefits
9. Regulatory protection
10. Protection through trustees
11. Transparency
When regulator say to mutual fund companies to distribute the profit among the unit
holders than it becomes the responsibility of the mutual fund company to distribute the
profit

Open ended and Close ended funds:

Open ended fund:
An open ended mutual fund is one that is available for subscription throughout the year.
Investor have the flexibility of buy and sell any part of their investment any time at price linked
to fund
NAV per share adjusted foe offer redemption price.
NAV:
IS THE UNIT of an open ended fund is publish on the respective website of the fund manager or
through other medium of communication. Open fund does not have affixed pool of money. The

50
fund manager is committed to continuously issues unit to the new investor at the offer price and
buy back unit to the old investor at the repurchase price.

CLOSE ENDED FUND:

ITS OPERATE FOR A FIXED DURATION.
THE fund is open for subscription only during a specific period of time usually the redemption is
also specifying which means that they terminate on specific period of time when the investor can
redeem their unit.
CAF is publically traded investment company which collect money from investor through ipo
and use this money in securities. The shares of CAF is traded on stock exchange,
The price of CAF shares fluctuate based on investor supply and demand.
OFFER PRICE:
This is the price at the fund sells the unit to the investor it is usually published in newspaper or
website of AMC or through other medium of communication.
REPURCHASE PRICE:
This is the price at which the fund buy back its unit from the units holder it’s also known as
redemption price.
TYPES OF FUND:
1. EQUITY AND STOCK FUND:
Is A Mutual Fund That Is Primarily Invest In Stock That Is While Also called stock fund.
Asset allocation of equity fund is that at least 72 to 80% of net asset are invested stock of
various companies.
2. BALANCE FUND:
Is the combination of stock and bond investment? The basis objective of balance fund is
combination of growth and income.
3. MONEY MARKET FUND:
The most continuous investor opts for money market M.F AS they provides investor with
constant return with high level of liquidity through blend of money market instrument
and debt instrument.
4. INCOME FIND:
This Fund Will Generally Invest in a number of fixed income security in order to earn

51
 return by investing in a blend of short, medium and long term instrument. This provide
the investor with regular income retire person can benefit from this fund,
5. GROWTH FUND:
The primary object of growth funds to seek long term appreciation, the secondary
objective is to make ones capital investment growth faster than the rate of inflation.

Different Types of Mutual Funds

UBL Assets Allocations Products
Introduction:

 GOVERNMENT SECURITIES

Investing in Government Securities has never been easier than this. Now with UBL you can
invest in Treasury Bills Pakistan Investment Bonds, depending on your need and investment
horizon. We also offer Ijarah Sukuks.

 BANCASSURANCE

UBL Signature priority banking offers bank assurance products in collaboration with Jubilee Life
Insurance.

 MUTUAL FUNDS

We believe in providing solutions that fit your preferences, your tolerance to risk, and your time
horizon. We strive to ensure that we bring you the best investment solutions across a variety of
asset classes. We offer mutual funds from leading asset managers; giving you the opportunity to
invest in the mutual funds that offer exposure to fixed income, equity, or gold. Additionally, you
can choose to invest in Shariah Compliant (where available) versions of the above asset classes.
To find out more about investing, contact your designated Relationship Manager – and he/she
will facilitate your investment.

52
Mutual Funds Investment Schemes:

Invest for short, medium and long-term savings goals with mutual fund investment schemes.

1. UBL Asset Allocation Fund (UAAF:)

This scheme offers you an easy and hassle-free method of diversifying your investment to
optimize returns and its security.

About the scheme

UBL Asset Allocation Fund (UAAF) is asset allocation scheme that offers you a convenient way
of using the method of asset allocation to earn the benefits of diversification while saving you
from the hassle of investing in multiple funds.

It allows you to:

 Benefit from aggressive and defensive investment avenues

 Effective portfolio diversification through a single investment scheme
 Open-end Fund Structure – Ease of entry & exit
 Attractive tax benefits
 You may also opt for the systematic conversion option, through which you may convert a
fixed amount, or the profit amount of your investments, from UAAF to other funds
managed by UBL Fund Managers (subject to terms & conditions)

Fixed Amount Conversion Option

 Under Fixed conversion option, the Unit Holder can opt to convert fixed amount from the
fund into another fund offered by the Management Company and having same Trustee at
predefined intervals (i.e: monthly, quarterly, semi-annually, annually or any other
frequency offered by the Management Company).

Regular Profit Conversion Option

 Under regular conversion option, the unit holder can opt to convert the profit amount of
their investment in the fund to any other fund offered by the Management Company and
having same Trustee at predefined intervals (i.e: monthly, quarterly, semi-annually,
annually or any other frequency offered by the Management Company).
 You have the option to withdraw your money, in part or whole; at your convenience
whenever the need arises and without incurring any charges.

53
 2. UBL Gold Fund (UGF):
UBL Gold Fund provides you direct exposure to Gold as an asset class; thus allowing you to reap
maximum benefits of investing in Gold. If you are looking for a subsequent purchase of Gold
Jewelry for your children’s wedding or for a special occasion in the long term, investing your money
in UGF can serve as an effective hedge against rising Gold prices. As there is no fixed-term holding
period requirement, you can invest in this scheme for your short and longer term needs. The
recommended investment horizon in UFG is 2-3 years.

3. UBL Income Opportunity Fund (UIOF)

*Formerly known as UBL Financial Sector Bond Fund (UFBF)

This scheme provides an ideal avenue for your medium to long term savings by offering access
to high quality corporate bonds issued by the Financial Sector.
About the scheme

UBL Income Opportunity Fund offers investors a convenient mode of investing in high quality
TFC’s/Sukuks issued by Financial Sector Institutions. Furthermore, this scheme offers investors
the opportunity to generate comparatively higher return(s) than other Fixed Income Catogery
Fund(s) – i.e. Government Securities fund(s).

UBL Income Opportunity Fund (UIOF) is a mutual fund investment scheme that offers an ideal
investment opportunity to grow your savings overtime. UIOF will invest majority of its portfolio
in Financial Sector debt securities, with the remaining part of the portfolio invested in
Government Securities, cash & short-term money market instruments to diversify risk. Thus
providing you a relatively safer yet rewarding opportunity to seek competitive returns from
Income Instruments.

For your medium to long-term goals

UIOF provides you an opportunity to effectively diversify your investments away from
Government Securities and Equities. UIOF is ideal for investors looking to invest over the
medium term. You can invest in UIOF without the worry of locking in your investment and the
added advantage of generating competitive returns.

Avail tax savings & enhance the return on your investment

By investing in UIOF you have the option to avail a tax savings facility (called a tax credit),
provided you hold your investment for a period of at least two year.

54
A tax credit is a kind of savings (or discount) that you can get on your income tax. The amount
of tax credit that you will be eligible for depends on your income tax rate and the amount you
invest in the scheme.

4. UBL Liquidity Plus Fund (ULPF)

This scheme provides an ideal short-term avenue for your surplus or idle cash allowing you to
earn a healthy return while having instant access to your money at all times.
About the scheme

There are times when you may have access to surplus cash that you would like to earn a return
on while still being able to access your money when needed. You can achieve this by depositing
your money in a current account, but you won’t be earning any return on it. If you decide to
place this money in a short-term savings account, the return you are likely to earn is generally
quite low.

UBL Liquidity Plus Fund (ULPF) is a mutual fund investment scheme that offers an ideal
investment facility that allows you to earn an attractive and stable return on your money while
providing you the flexibility of withdrawing your money any time you want.

For your surplus cash

You can use a ULPF account as a ‘parking place’ for money that you have access to for a limited
period of time. For example, if you have sold an asset like a car or house, and have cash in hand
that is not ready to be used yet, you can place this money in a ULPF account. For the time your
money is placed in ULPF – whether it is for a day, a week or a couple of months, you can earn a
daily return. And unlike a savings account, there is no fixed term holding period requirement –
which mean you enjoy instant access to your money at all times.

For emergency planning

You can also use your ULPF account for unforeseen and unpredictable circumstances. To be
able to meet financial obligations in times of such emergencies you should save money as cash
or in any other form that provides easy and instant access to your money. When you place your
money in ULPF, you can access your money the very next day with our ‘Same Day Redemption
(Withdrawal) Facility’ – there are no fixed-term holding period requirements, and no charges on
withdrawal.

55
 5. UBL Government Securities Fund (UGSF)

This scheme provides a safe and secure avenue for your short and medium-term savings with the
facility of accessing your money at your convenience.
About the scheme

Securities issued by the Government of Pakistan provide a secure avenue for investing your
money while also making it possible to earn competitive returns.

UBL Government Securities Fund (UGSF) is a mutual fund investment scheme that invests
primarily in securities issued by the Government of Pakistan to provide a competitive stream of
income on your investment. As there is no fixed-term holding period requirement, you can invest
in this scheme for both your short and longer term needs.

For your short-term needs

You can use your investment in UGSF for your short-term savings needs, that is money that you
have access to for a limited period of time. Until the time your money is placed in UGSF you can
earn a competitive return – whether it is for a few weeks or months. You have the option to
withdraw your money, in part or whole, at your convenience whenever the need arises.

For your medium to long-term needs

You can also use your investment in UGSF for your medium to long-term savings needs. Since
the scheme invests primarily in securities issued by the Government of Pakistan, it ensures the
safety of your money while also allowing you to earn a more competitive return on your savings.
You can also enjoy exclusive tax benefits on your investment in UGSF. Not just this, unlike a
fixed term deposit, there is no minimum holding period requirement in UGSF , so while you may
plan to save for your longer term goals, you can easily access your money, without any charges,
any time you want.

6. UBL Money Market Fund (UMMF)

This scheme is designed to grow your savings over time so you can meet your medium to long-
term investment goals with ease.
About the scheme

Your money is a valuable asset and it should be put to work just as hard as you work to earn it.
This way you can be confident about meeting your future financial obligations and goals with
ease.

56
One of the ways of making your money work is to invest it in a savings scheme. But traditional
savings schemes generally offer a relatively low rate of return especially when the amount you
are investing is not very huge. Also such schemes require that you lock-in your money for a
predefined period of time.

UBL Money Market Fund (UMMF) is a mutual fund investment scheme that offers an ideal
investment opportunity to grow your savings. Compared to traditional savings schemes, you can
enjoy an attractive market-based return on your investment – no huge lump-sum amount or lock-
in conditions.

For your medium to long-term goals

You can use your UMMF account as a means of growing your savings over the medium to long-
term. Whatever duration you are planning to invest your money for, with UMMF you can start
earning a return from the very first day. You also don’t need to worry about locking-in your
money for a fixed-term. In fact UMMF gives the convenience of accessing your money any time
you want – without any charges.

For regular income

UMMF gives you the option to receive the earnings on your investment on a monthly, quarterly,
semi-annual or annual basis. This amount will automatically be transferred to your bank account
or will be sent to you in the form of a cheque or demand draft at the end of every month.

Avail tax savings & enhance the return on your investment

Unlike traditional savings schemes which offer no tax benefits, when you invest in UMMF you
have the option to avail a tax savings facility (called a tax credit) if you decide to hold your
investment for a period of at least two year. A tax credit is a kind of savings (or discount) that
you can get on your income tax. The amount of tax credit that you will be eligible for depends on
your income tax rate and the amount you invest in the scheme.

7. UBL Growth & Income Fund (UGIF)

This scheme offers a long-term avenue for the growth of your savings by investing in long-term
investment instruments that do not have any exposure to the stock market.
About the scheme

While investing in the stock market offers an attractive growth potential over the long-term, you
may not be comfortable with the fluctuations (increase and decrease) in prices that you will be
facing when investing in stocks.

57
In comparison, Term Finance Certificates (TFC) as an alternative investment avenue offer you
the potential for long-term growth with comparatively less volatility (to the stock market). Term
Finance Certificates are ‘corporate bonds’ or loans that companies other than banks extend to
companies who require this money for their future growth and development needs. In return for
the loan that these companies borrow, they offer a fixed rate of return to the issuer of the loan
over a predefined period of time.

UBL Growth & Income Fund (UGIF) is a mutual fund investment scheme that offers you an
opportunity to gain exposure to Term Finance Certificates (TFC) and benefit from the long-term
growth potential that such investment instruments have to offer. Compared to a stock market
based investment scheme, UBL Growth & Income Fund (UGIF) offers a less volatile investment
avenue for your long-term growth of savings.

For your long-term goals

While investing in Term Finance Certificates (TFC) offers an attractive growth potential for your
savings, the prices of TFC are subject to a daily pricing mechanism based on a mark-to-market
basis which brings about short-term fluctuation in the prices of UGIF. So if you have time on
your hands, and won’t be requiring your money in the short-term, investing in UGIF can be an
option you may want to consider to achieve your long-term goals (preferably over 5 or more
years).

8. UBL Stock Advantage Fund (USF)

This scheme offers you an opportunity to maximize the growth potential of your savings over the
long-term by investing your money in the stock market with the help of our investment
professionals.
About the scheme

UBL Stock Advantage Fund (USF) is a mutual fund investment scheme that offers you an easy
way of investing your money in the stock market by offering you the expertise of its investment
professionals who have a thorough understanding of the markets, have access to research teams,
and have the required experience and expertise to manage your investments on your behalf on a
day-to-day basis. This way, you can enjoy the growth potential offered by the stock market
without having to worry about stock selection, buy and sell decisions and coordination with
brokers.

For your long-term goals

While investing in the stock market tends to offer an attractive growth potential for your savings,
stock market returns are subject to volatility (increase and decrease in value) in the short-term.

58
For this reason, you should consider investing in the stock market for your long-term investment
goals (preferably 5 or more years). So if you have time on your hands, and won’t be requiring
your money in the short-term, investing in USF can be an option you may want to consider to
achieve your long-term goals.

While you can always invest a lump sum amount in USF, one of the recommended ways of
investing in the stock market is to do so through ‘Systematic Investment Planning’ or SIP.
Systematic Investment Planning allows you to invest small amounts of money on a regular basis
as opposed to a one time lump sum investment. The benefits of investing regularly allows you to
invest at different time intervals. Since it is the very nature of stock markets to move up and
down, no one can predict precisely where the market will head next. By investing at regular
intervals through SIP, you can adopt a disciplined investment strategy and effectively reduce
timing risks. This means you are less likely to end up ‘buying high’ and ‘selling low’.

For beating inflation

Inflation is considered to be the biggest enemy of your savings. As time passes, the value of your
money can decrease with rising inflation. Because of the unparalleled growth potential that
investing in the stock market offers over the long-term, such investments are considered as an
effective means of beating inflation and retaining the value of your money over time.

9. Islamic Funds

Al-Ameen Islamic Cash Fund (AICF)

Formerly UBL Islamic Cash Fund (UICF)

This scheme provides an ideal short-term avenue for your surplus or idle cash allowing you to
earn a healthy riba free return while having instant access to your money at all times.
About the scheme

There are times when you may have access to surplus cash that you would like to earn a halal
return on while still being able to access your money when needed. You can achieve this by
depositing your money in a current account, but you won’t be earning any return on it. If you
decide to place this money in a short-term savings account, the return you are likely to earn is
generally quite low.

Al-Ameen Islamic Cash Fund (AICF) [formerly UBL Islamic Cash Fund (UICF)] is a mutual
fund investment scheme that offers an ideal investment facility that allows you to earn an
attractive and stable riba free return on your money while providing you the flexibility of
withdrawing your money any time you want.

59
For your surplus cash

You can use the Al-Ameen Islamic Cash Fund (AICF) [formerly UBL Islamic Cash Fund
(UICF)] account as a ‘parking place’ for money that you have access to for a limited period of
time. For example, if you have sold an asset like a car or house, and have cash in hand that is not
ready to be used yet, you can place this money in the AICF account. For the time your money is
placed in this fund – whether it is for a day, a week or a couple of months, you can earn a riba
free daily return. And unlike a savings account, there is no fixed term holding period requirement
– which mean you enjoy instant access to your money at all times.

Managed as per Shariah Law

AL-Ameen Islamic Cash Fund (AICF) [formerly UBL Islamic Cash Fund (UICF)] is managed
by UBL Fund Managers. All investments in the scheme are made strictly in Shariah-compliant
instruments under the supervision of a Shariah Advisory Board which comprises of renowned
Islamic scholars Mufti Muhammad Hassan Kaleem and Mufti Najeeb Khan.

10. Al-Ameen Islamic Aggressive Income Fund (AIAIF):

Is a Shariah-compliant investment scheme that offers you an opportunity to gain exposure to

Sukuks and benefit from the long term growth potential offering a less volatile investment
avenue compared to a stock market based investment scheme for the long term growth of your
savings. The objective of this scheme is to offer clients with superior, risk-adjusted returns over
the long term by investing in Shariah-compliant medium to long-term income and short term
money market instruments

Al-Ameen Islamic Sovereign Fund (AISF):

Formerly UBL Islamic Sovereign Fund (UISF)

This scheme provides an ideal avenue for your short and medium-term savings needs while
giving you an easy access to your money.
About the scheme

Securities issued by the Government of Pakistan provide a secure avenue for investing your
money while also making it possible to earn competitive returns when compared to traditional
bank deposits.

Al-Ameen Islamic Sovereign Fund (AISF) [formerly UBL Islamic Sovereign Fund (UISF)] is a
mutual fund investment scheme that invests primarily in Shariah complaint securities issued by
the Government of Pakistan and other high rated Shariah-compliant debt and money market

60
instruments to provide a competitive stream of Riba-free income on your investment. As there is
no fixed-term holding period requirement, you can invest in this scheme for both your short and
longer term needs.

For your short-term savings needs

You can use your AISF account as a savings account for your short term savings needs. Until the
time your money is placed in AISF, you can earn healthy Riba-free return on your savings –
whether it is for a few weeks, few months, or a year. You have the option to withdraw your
money, in part or whole, at your convenience whenever the need arises.

For your medium-term & regular income needs

You can also use your AISF account for your medium-term savings needs and expect to earn a
competitive halal return on your investment. The scheme also gives you the facility to receive
your earnings on a monthly, quarterly, semi-annual or annual basis. This amount will
automatically be transferred to your bank account or will be sent to you in the form of a cheque
or demand draft periodically.

Managed as per Shariah Law

Al-Ameen Islamic Sovereign Fund (AISF) [formerly UBL Islamic Sovereign Fund (UISF)] is
managed by UBL Fund Managers. All investments in the scheme are made strictly in Shariah-
compliant instruments under the supervision of a Shariah Advisory Board which comprises of
renowned Islamic scholars Mufti Muhammad Hassan Kaleem and Mufti Najeeb Khan.

Al-Ameen Islamic Asset Allocation Fund (AIAAF):

Formerly UBL Islamic Asset Allocation Fund (UIAAF)

This scheme offers you an easy and convenient Shariah-compliant method of diversifying
your investment to optimize returns and its security.

About the scheme

Al-Ameen Islamic Asset Allocation Fund (AIAAF) [formerly UBL Islamic Asset Allocation
Fund (UIAAF)] is a Shariah-compliant asset allocation scheme that offers you a convenient way
of using the method of asset allocation to earn the benefits of diversification while saving you
from the hassle of investing in multiple funds.

The fund allows you to:

61
  Benefit from aggressive and defensive investment avenues
 Effective portfolio diversification through a single investment scheme
 Open-end Fund Structure – Ease of entry & exit
 Attractive tax benefits

You may also opt for the systematic conversion option, through which you may convert a fixed
amount or the profit amount of your investments, from AIAAF to other funds managed by UBL
Fund Managers (subject to terms & conditions)

Fixed Amount Conversion Option

Under Fixed conversion option, the Unit Holder can opt to convert fixed amount from the fund
into another fund offered by the Management Company and having same Trustee at predefined
intervals (i.e: monthly, quarterly, semi-annually, annually or any other frequency offered by the
Management Company).

Regular Profit Conversion Option

Under regular conversion option, the unit holder can opt to convert the profit amount of their
investment in the fund to any other fund offered by the Management Company and having same
Trustee at predefined intervals (i.e: monthly, quarterly, semi-annually, annually or any other
frequency offered by the Management Company).

You have the option to withdraw your money, in part or whole; at your convenience whenever
the need arises and without incurring any charges.

Al-Ameen Shariah Stock Fund (ASSF):

Formerly United Shariah Stock Fund (USSF)

This scheme offers you an opportunity to maximize the growth potential of your savings over the
long-term by investing your money in the stock market with the help of our investment
professionals.
About the scheme

The world over, investing in the stock market is considered to be a time-tested method of
creating wealth over the long-term. In Pakistan as well, the Karachi Stock Exchange (KSE) has
given a return of 1611% since Jun 1997 to Jan 2014 – much higher than the return given by any
other investment avenue.

62
While investing in the stock market can be a rewarding investment avenue, it requires knowledge
and understanding of the market and the time to manage your own portfolio.

Al-Ameen Shariah Stock Fund (ASSF) [formerly UBL Shariah Stock Fund (USSF)] is a
Shariah-compliant mutual fund scheme that offers you an easy way of investing your money in
the stock market (Islamic stocks) by offering you the expertise of its investment professionals
who have a thorough understanding of the markets, have access to research teams, and have the
required experience and expertise to manage your investments on your behalf on a day-to-day
basis.

For your long-term goals

While investing in the stock market tends to offer a very attractive growth potential for your
savings, stock market returns are subject to volatility (increase and decrease in value) in the
short-term. For this reason, you should consider investing in the stock market for your long-term
investment goals (preferably 5 or more years). So if you have time on your hands, and won’t be
requiring your money in the short-term, investing in ASSF can be an option you may want to
consider to achieve your long-term goals.

While you can invest a lump sum amount in ASSF, one of the recommended ways of investing
in the stock market is to do so through ‘Systematic Investment Planning’ or SIP. Systematic
Investment Planning allows you to invest small amounts of money on a regular basis as opposed
to a one time lump sum investment. The benefits of investing regularly allows you to invest at
different time intervals. Since it is the very nature of stock markets to move up and down, no one
can predict precisely where the market will head next. By investing at regular intervals through
SIP, you can adopt a disciplined investment strategy and effectively reduce timing risks. This
means you are less likely to end up ‘buying high’ and ‘selling low’.

Managed as per Shariah Law

Al-Ameen Shariah Stock Fund (ASSF) [formerly UBL Shariah Stock Fund (USSF)] is managed
by UBL Fund Managers. All investments in the scheme are made strictly in Shariah-compliant
instruments under the supervision of a Shariah Advisory Board which comprises of renowned
Islamic scholars Mufti Muhammad Hassan Kaleem and Mufti Najeeb Khan.

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