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Important Aspects Related to Foreign Exchange Operations of Commercial Banks

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Important Aspects Related to Foreign Exchange Operations of Commercial Banks The American Journal of Applied sciences IMPACT FACTOR – (ISSN 2689-0992) 2021: 5. 634 Published: April 30, 2021 | Pages: 157-165 Doi: https://doi.org/10.37547/tajas/Volume03Issue04-22 OCLC - 1121105553 Important Aspects Related To Foreign Exchange Operations Of Commercial Banks Normet Saparboyevich Ernazarov Head Teacher, Department Of Bank Accounting And Auditing, Tashkent Financial Institute, Тashkent, Uzbekistan Oybek Odilovich Xudoyorov Journal Website: PhD, Head Teacher, Department Of Bank Accounting And Auditing, Tashkent Financial http://usajournalshub.c Institute, Тashkent, Uzbekistan om/index,php/tajas Copyright: Original content from this work may be used under the terms of the creative commons attributes 4.0 licence. ABSTRACT This article provides analytical, critical and econometric analysis of the factors influencing the off- balance sheet operations of commercial banks of the Republic of Uzbekistan. Factors influencing documentary letters of credit, currency forward transactions, bank guarantee-related transactions, currency spot, currency futures and options from off-balance sheet operations, which are highly profitable for commercial banks, were studied. KEYWORDS Off-balance sheet transaction, forward, futures, options, currency, letter of credit, currency swap, currency spot, deficit, inflation, uncovered letter of credit. INTRODUCTION A number of financial institutions, such as the operations of commercial banks. These studies Central Banks of the developed countries of are scientifically based on the integrated use of the world, the International Monetary Fund, documented forms and types of letters of the Basel Committee, have conducted research credit, the expansion of commercial bank on the development of off-balance sheet guarantee operations, foreign exchange The USA Journals Volume 03 Issue 04-2021 157 The American Journal of Applied sciences IMPACT FACTOR – (ISSN 2689-0992) 2021: 5. 634 Published: April 30, 2021 | Pages: 157-165 Doi: https://doi.org/10.37547/tajas/Volume03Issue04-22 OCLC - 1121105553 options and futures, the role of off-balance MATERIALS AND METHODS sheet operations in risk management of commercial banks. However, in these studies, Several factors simultaneously affect the off- the issues related to the lack of opportunities balance sheet operations of commercial banks. for the development of off-balance sheet However, while the factors that affect each type of off-balance sheet transaction have operations in the context of high levels of financial risk in the activities of commercial specific characteristics, some factors can affect banks, low level of diversification of foreign all off-balance sheet transactions.(shu joyi exchange reserves of banks remain relevant. tepadagi gap bilan bir xil bo’pqopti) Below we assess the impact of these factors on Several factors simultaneously affect the off- balance sheet operations of commercial banks. the off-balance sheet operations of However, while the factors that affect each commercial banks. type of off-balance sheet transaction have In our opinion, the main factors influencing the specific characteristics, some factors can affect off-balance sheet operations carried with all off-balance sheet transactions. documented letters of credit of commercial The ultimate goal of radical reforms in the banks of the Republic, are: banking system of Uzbekistan is to increase the a) The level of solvency of customers who financial stability of banks, strengthen the have the status of a legal entity using the competitive environment of commercial banks services of a letter of credit of commercial in the digital economy and, as a result, provide banks. modern banking financial services to customers. Although off-balance sheet Due to the high risk level of uncovered letters operations are an important factor in ensuring of credit, commercial banks only issue the financial stability of banks, there is almost uncovered letters of credit to customers with a no scientific and theoretical research in this high level of solvency. Therefore, the level of area in the country. In particular, in the practice solvency of customers plays an important role of commercial banks, there are no foreign in increasing the volume of documented letters exchange options and futures, and more than of credit opened by commercial banks on the 90% of the documented letters of credit payment obligations of customers. opened by banks are covered by secured letters of credit. "Taking measures to improve b) Commercial banks have the opportunity to foreign exchange policy and foreign trade, repay documented letters of credit at the attract foreign investment into the economy, expense of their loans. increase export potential, sustainable development of modern, export-oriented In developed countries, if there are no funds available in the payer's current account at the industries, small businesses and private entrepreneurship" [1] is one of the priorities. time of receipt by the letter of credit, then the Ensuring the fulfillment of these tasks remains amount of the letter of credit is paid from the one of the most pressing issues today. term or overdraft loan of the letter of credit [2]. The USA Journals Volume 03 Issue 04-2021 158 The American Journal of Applied sciences IMPACT FACTOR – (ISSN 2689-0992) 2021: 5. 634 Published: April 30, 2021 | Pages: 157-165 Doi: https://doi.org/10.37547/tajas/Volume03Issue04-22 OCLC - 1121105553 In order for a commercial bank to repay Banks in Uzbekistan currently use market documented letters of credit on time from interest rates, mainly London Inter-Bank their loans, they must not have an unbalanced Offered Rate (LIBOR) as the interest rate of the liquidity problem. The results of scientific transaction currency. The IZIBID rate is used as research by a number of Uzbek economists the market rate for UZS deposits. have shown that there is a problem of unbalanced liquidity in commercial banks of There are no currency options and futures in the country [3]. the banking practice of the Republic of Uzbekistan. Therefore, it is not possible to One of the main factors influencing the bank perform an analysis of the factors affecting guarantee operations of commercial banks is them. the solvency of customers guaranteed by the bank. This is because if the guaranteed The main part of off-balance sheet operations of commercial banks of the Republic in foreign customer is unable to pay due to payment obligations, the bank will be forced to make currencies is currency swap operations. the payment at its own expense. In our opinion, the factors influencing the Also, the ability of the bank-guaranteed currency swap operations of commercial banks of the Republic are: customer to fulfill its obligations in a timely manner is one of the main factors influencing 1. The degree of volatility of the spot rate the bank guarantee operations of commercial of the national currency. banks. Since currency swap transactions are a One of the main reasons for the mass combination of spot and forward transactions, bankruptcy of U.S. banks during the Great the volatility of the national currency spot rate Recession was that commercial banks is one of the main factors influencing currency provided large amounts of guarantees on swap transactions. customers' payment obligations and payments were made by banks as a result of their In turn, the high level of volatility of the insolvency [4]. national currency spot rate is explained by the following factors: In our opinion, one of the main factors influencing the development of forward • High inflation rate (in 2020, the annual operations of commercial banks of the inflation rate in the country was 11.1% [5]); Republic of Uzbekistan is the large difference • High growth rate of money supply; between the interest rate on loans in the • Execution of the state budget with a deficit; transaction currency and the interest rate on • The country's foreign trade balance has a deposits in the appraisal currency. large negative balance (in 2020, the country's foreign trade balance had a It is known that in our Republic our national negative balance of 6 billion US dollars [6]). currency is the soum, and for us all foreign currencies are transaction currencies. The USA Journals Volume 03 Issue 04-2021 159 The American Journal of Applied sciences IMPACT FACTOR – (ISSN 2689-0992) 2021: 5. 634 Published: April 30, 2021 | Pages: 157-165 Doi: https://doi.org/10.37547/tajas/Volume03Issue04-22 OCLC - 1121105553 Spot rate of Soum against US dollar, soum (based on the results of the last foreign exchange trade of each fiscal year) 12000 10000 10476.92 8000 6000 4000 2000 2809.98 1690.15 1640 0 2005 йил 2010 йил 2015 йил 2020 йил 1-figure. Spot rate of Soum against US dollar, soum (based on the results of the last foreign exchange trade of each fiscal year) [7] Figure 1 shows that in 2010-2020, the volatility The practical significance of currency swap of the spot exchange rate against the US dollar operations for commercial banks is reflected in was high. This has a negative impact on the the following: development of currency swap transactions. While the sale of foreign currency under a swap 2. The fact that the Republic of operation allows you to reduce the long Uzbekistan has a large deficit of currency position in that currency, the foreign trade balance; purchase of foreign currency allows you to reduce the short currency position in that Having a large deficit of the balance of foreign foreign currency. trade creates a strong pressure on the spot rate of the national currency. Placement of foreign currency funds in "Nostro" correspondent accounts in foreign 3. High inflation rate; currencies of commercial banks, for example, placement of funds in "Nostro" correspondent In 2020, the inflation rate in the country was accounts in US dollars by swap is carried out in 11.1% [8]. the following order: It should be noted that the existence of a direct • Funds available in the bank's dollar account and strong link between inflation and the state "Nostro" are sold at the spot rate in one of budget is scientifically substantiated.
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