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ASSIGNMENT 1
THE MALAYSIAN FINANCIAL MARKETS
NAME : MYRNA DAMAYANTI BINTI MIRAJ
MATRIC NUMBER : 2003667077
GLOSSARY
1.0 INTRODUCTION
• WHAT IS MEANT BY THE TERM FINANCIAL MARKET
• A HISTORY OF MALAYSIAN FINANCIAL MARKET
2.0 TYPES OF MALAYSIAN FINANCIAL MARKETS
• MONEY MARKET vs CAPITAL MARKET
• WHAT TYPES OF FINANCIAL MARKET STRUCTURES EXIST? ... 0 THE IMPORTANCE OF MALAYSIAN FINANCIAL MARKETS
4. ... 0 INTRODUCTION
WHAT IS MEANT BY THE TERM FINANCIAL MARKET?
The financial system comprises all financial markets, instruments and institutions. It is through this system that financial markets operate, playing a key role in allocating resources in the economy. Financial markets intermediate between those who have money and want to earn a profit on it (savings and investors) and those who need it (borrowers and entrepreneurs). ... By issuing claims on themselves in the form of deposits (banks), commercial papers (finance companies), contracts (insurers), or shares (mutual funds), financial markets bridge the gap between countless borrowers and lenders. ... The operations of financial markets provide a bridge between savers and borrowers, through the actions of financial intermediaries. These can broadly be divided into banks and non-bank financial institutions, finance companies, merchant banks, credit unions, building societies, mortgage originators, life insurance companies and unit trusts. Within these financial institutions there is a variety of financial market products in the economy to meet the various needs of lenders and borrowers as according to risk, return and liquidity.
A HISTORY OF MALAYSIAN FINANCIAL MARKET
Malaysia’s present financial system started to evolve in 1959 with the operations of Bank Negara Malaysia, the country’s central bank. The financial system inherited by Bank Negara Malaysia was rudimentary with limited regulatory powers. ... Malaysia immediately develops a robust financial system that would be dominated by Malaysian institutions which could compete against foreign banks. The 1960s saw the rapid expansion of domestic financial institutions while the 1970s witnessed the emergence of merchant banking, the capital market, and non-bank financial institutions. The financial system was further diversified in 1983 with the introduction of Islamic Banking Following a 1986 collapse of several financial institutions that caused a crisis of confidence compelling rescue operations by the central bank. Bank Negara Malaysia was given wide powers to regulate all banking and licensed financial institutions as well as all fringe institutions involved in credit and finance. ... The 1990s saw the establishment of a rating agency and a Securities Commission responsible for the securities industry, financial futures and options markets, unit trust and property trust schemes, as well as takeovers and mergers. Capital market deepening began in 1987 with the introduction of mortgage-backed bonds issued by the index national mortgage corporation, Cagamas, and continued with the launching of a stock market futures contract by the Kuala Lumpur Options and Financial Future Exchange (KLOFFE) in December 1995 and the launching of the 3-month interest rate futures contract based on the 3-month KLIBOR by the Malaysian Monetary Exchange (MME) in May 1996. The Labuan International Off-shore Financial Centre established in 1990 has attracted offshore banks, insurance companies, and trust funds. Another milestone capital market development is the anticipated launching of the Malaysian Exchange of Securities Dealing and Automated Quotations (MESDAQ) an OTC market to tap funds for high technology, capital- and skill-intensive companies with no track record. ... In particular, these developments were geared towards nurturing the capital market to fill the institutional gap in the financial system and complement the role of traditional lenders. The Capital Market Master Plan launched in February 2001 provides the framework for the development of the Malaysian capital market in the new decade. ... The government also launched the Financial Sector Master Plan, which outlines the strategies for the development of the financial sector, in March 2001. ... 0 TYPES OF MALAYSIAN FINANCIAL MARKETS
MONEY MARKET vs CAPITAL MARKET
The money market is the market for shorter-term securities, generally those with one year or less to maturity. ...
What Are the Types of Financial Market Structures that Exist?
The costs of collecting and aggregating information determine, to a large extent, the types of financial market structures that emerge. These structures take four basic forms:
• Auction markets conducted through brokers;
• Over-the-counter (OTC) markets conducted through dealers;
• Organized Exchanges, such as the Kuala Lumpur Stock Exchange, which combine auction and OTC market features. ...
• Intermediation financial markets conducted through financial intermediaries;
Financial markets taking the first three forms are generally referred to as securities markets. Some financial markets combine features from more than one of these categories, so the categories constitute only rough guidelines.
Auction Markets: An auction market is some form of centralized facility (or clearing house) by which buyers and sellers, through their commissioned agents (brokers), execute trades in an open and competitive bidding process. ... Auction markets can either be call markets; such as art auctions where bid and asked prices are all posted at one time, or a continuous markets; such as stock exchanges and real estate markets. ...
Many auction markets trade in relatively homogeneous assets (for examples; Treasury bills, notes and bonds) to cut down on information costs. Alternatively, some auction markets (for example in second-hand jewelry, furniture, paintings etc. ... Consequently, auction markets depend on volume to spread these costs over a wide number of participants.
Over-the-Counter Markets: An over-the-counter market has no centralized mechanism or facility for trading. ... Many well-known common stocks are traded over-the-counter in Malaysia through Malaysian Exchange of Securities Dealing and Automated Quotation (MESDAQ).
Intermediation Financial Markets: An intermediation financial market is a financial market in which financial intermediaries help transfer funds from savers to borrowers by issuing certain types of financial assets to savers and receiving other types of financial assets from borrowers. The financial assets issued to savers are claims against the financial intermediaries, hence liabilities of the financial intermediaries, whereas the financial assets received from borrowers are claims against the borrowers, hence assets of the financial intermediaries. ... Malaysian Treasury Bills (MTBs)
d. ... Malaysian Government Securities (MGS)
g. ... ) The advantage of money market investments is that many of them are backed by the Malaysian government, so return of the principal is practically guaranteed. ...
PRIMARY vs SECONDARY MARKET
Primary markets are securities markets in which newly issued securities are offered for sale to buyers. On the other hand, secondary markets are securities markets in which existing securities that have previously been issued are resold. ...
The Malaysian government securities (MGS) are interest bearing bonds issued by the government through Bank Negara Malaysia (BNM), the central bank, to raise long-term funds from the domestic capital market to finance the government’s development expenditure. ... One of the noticeable features of the MGS market is the creation of a captive market as the papers are sought to meet mandatory investment requirements for most financial intermediaries, insurance companies and provident and pension funds.
Approximate Word count = 5546
Approximate Pages = 22.2
(250 words per page double spaced)
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