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Shielding Sri Lankan Exporters: How Forward Contracts Beat Currency Risk

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Sri Lankan exporters are constantly in a state of uncertainty in the dynamic global trading world. Tea, garments, and spices are the main export items in Sri Lanka. But these sectors are exposed to currency risk. Sudden changes in the exchange rate between the Sri Lankan Rupee (LKR) and the US Dollar are the main reason for this and can lead to losses in the millions. Companies are adopting forward contracts as derivative instruments that bind two parties to exchange a pre-determined exchange rate to cope with this. Recently, the Central Bank of Sri Lanka (CBSL) declared the initiation of new tools of hedging foreign exchange risk between the importers and exporters. This rise shows the growing significance of the derivatives within the local financial background and its relevance to the existence and growth of the Sri Lankan enterprises. The dilemma: Sri Lankan exporters’ currency risk. Here is an example of a tea exporter in Colombo receiving a US$1 million order in Europe. It has no...
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Tourism Earnings And FX Market Dynamics Of Sri Lanka.

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  Tourism Earnings And FX Market Dynamics Of Sri Lanka. Tourism, a major foreign exchange earner in Sri Lanka, has been in decline during this period. In August 2025, tourism receipts declined by 8.2% year-on-year to US$258.9 million. However, according to the Sri Lanka Tourism Development Authority, tourist arrivals have increased by 20.4%, but tourism receipts have declined. The reasons for this include a decrease in per capita tourist spending, poor infrastructure, and poor service quality. This decline has been ongoing since July, and although tourist arrivals increased by 6.6%, tourism receipts have fallen by 3%. However, in the first months of 2025, cumulative earnings have increased by 5.2% to US$2.29 billion. This has shown a good trend in the first months. However, the government's expectation of US$5 billion in revenue and 3 million arrivals in 2025 has been shattered. FX Market Implications. Tourism is a source of supply in the FX market. A decline in tourism revenue h...
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Sri Lanka’s Foreign Reserves Edge Up in August 2025, But Risks Remain

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Source - Central Bank Of Sri Lanka Gross official foreign reserves in Sri Lanka rose to USD 6.17 billion in August 2025, a small improvement of USD 19 million as per Central Bank data as compared to July. This growth, though an improvement, is not fast enough to fund external debt repayments in the future and keep the currency stable. Liquidity Preference Theory In Action The current monetary policy of Sri Lanka relates to the theory of Liquidity Preference as postulated by Keynes. To keep interest rates low, the Central Bank has been adding huge volumes of liquidity since October 2024 under an abundant reserve regime. Keynes believed that with an increase in liquidity, interest rates would decrease and borrowing would become less expensive, consequently triggering short-run economic growth. This caused an increase in credit demand and expenditure in the Sri Lanka scenario. Nevertheless, the flood of money also boosted imports demand, spurring dollar outflows and reducing the rate of r...
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The Role of Non-Bank Financial Institutions in Rural Development: Insights from LCB Finance’s Kurunegala Expansion

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Non-Bank Financial Institutions (NBFIs) are very important in the financial system of Sri Lanka since they serve to individuals and businesses that are usually excluded the traditional bank. As compared to commercial banks, which mainly depend on the demand deposits and offer massive lending, NBFIs, such as finance companies, leasing companies, and microfinance institutions serve special purposes such as SME lending, leasing, and agricultural lending. The latest expansion of Lanka Credit and Business Finance PLC (LCB Finance) at Kurunegala is a significant step in enhancing financial inclusivity in an area that is largely based on agriculture and small-scale businesses. This article takes a critical look at the event in relation to the functions, supporters, and risks of NBFIs. Source:Official Facebook Page of LBC Finance PLC LCB Finance has established its 22nd branch in Kurunegala to offer credit facilities and financial services to farmers, entrepreneurs, women and young. The compan...
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The Beauty of Boring: Sri Lanka's Bond Market Finds Calm

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S ometimes, no news can be good news. That is especially true for Sri Lanka's bond market. While big crashes or rallies make the headlines, what happened this week or what didn't may be more important to the country's economy. Source- bizenglish.adaderana.lk What Really Happened On August 19th, something unusual happened: the bond market was calm. Yields (the returns investors receive on government bonds) did not change significantly. The 2032 bond saw a slight increase, but most other bonds remained unchanged. People still traded about Rs. 7.56 billion worth of bonds, but nobody panicked or got overexcited. This muted day came ahead of a big government auction where the Central Bank was to borrow Rs. 78.50 billion through Treasury bills. Interestingly, this was Rs. 25 billion less than what it borrowed a week ago. Source- Daily FT                                             ...
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HNB Assurance and SMIB linking together to expand bancassurance reach in Sri Lanka

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HNB Assurance PLC, the insurance arm of HNB, has entered into a strategic partnership with the State Mortgage and Investment Bank (SMIB). This collaboration aims to deliver tailored life insurance products to SMIB’s extensive customer base as a landmark partnership in bancassurance. What is Bancassurance?                                                                                                                                        Source : LinkedIn A bank and an insurance company collaborate to offer insurance products or insurance benefits to the bank's customers. The bank will become the main po...
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From cash to code: The rise of digital Banking

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Have you ever scanned a QR code when you buy something? If you have already done this, you are already a part of digital banking. Nowadays, people's time has become a very valuable thing. Innovative mobile applications have evolved into online lending platforms. Technology is also advancing to the point of solving customer problems through chatbots. The reasons for the rapid spread of digital banking include the changing lifestyle of people during the COVID pandemic, the trend towards technology, the popularity of mobile applications with the advent of smartphones, and the introduction of projects like LankaQR and GovPay by the government. The impact this has had on people's lifestyles is so great that even small vendors selling on the side of the road are using these QR payment methods.   What is GovPay? On February 7, 2025, GOVPAY was introduced by ICTA. It was introduced in collaboration with fifty-two institutions and as of July, 7024 digital payment transactions ...
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Extensive Study of the Bond Market

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  Have you ever asked yourself why interest rates increase when the number of people who need to borrow money increases? The relevance of this question is particularly relevant now, as the nature of Sri Lanka’s bond yields, which are again on the rise, reflects growing borrowing needs among investors, inflation fears and uncertainty. The Loanable Funds (LFT) approach provides a simple and realistic description of how these interest rates are set not only by policy, but also by market forces in savings and borrowing. What is happening in Sri Lanka’s bond market? Sri Lankan government bond interest rates have increased in the past two weeks. Analysts say that two issues have contributed to this. Increased government borrowing due to fiscal policy and budget deficits Foreign investors withdrawing their investment from the market due to the discussions and excitement of debt restructuring. When government increases, the government has to pay to borrow funds, and to do so, the governmen...
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