TMA 1

NAME: CHAN MING EN

STUDENT ID: 041130495
CLASS: 4BFS1
TUTORS NAME: TAN KOCK LIM

QUESTION 1
The difference between 1988 Capital Accord and Basel II is that in 1988 Capital
Accord, it more focus on the every single risk measure to measure the credit and the
risk of market on the capital adequacy ratio. Besides that, the 1988 Capital Accord
also promote that one size fits all where it has no any material gradation of the risk,
and it has less definitive and detailed structure.
On the other hand, the Basel II have provides the more flexible and comprehensive
approach for managing and measuring the risks, therefore it helps in increased the risk
sensitivity in the process. To become the new charge, in Basel II, it has adds on the
operational risk. Basel II also promotes the management in the banks internal risks
methodologies. As a part of risk assessment, Basel II incorporates the supervisory
review and the market discipline.

QUESTION 2
There are many among the functions of Bank Negara Malaysia (BNM), for example,
BNM will always make sure there have enough reserve to safeguards the value of the
economy, by issuing the currency. This is to avoid the happening of a sudden
withdrawal from the public, because if happen that the public wish to withdraw their
money, and the bank cannot fulfilled their demand, it will cause the happening of
unstable economy.
Besides that, the BNM also will act as the financial advisor and the banker to the
government. For example, the BNM will advise the government to do the suitable
investment to expand the Malaysias financial status. BNM will then advise the
government on how to control the money supply in the market too.
The BNM also acting an important role as it can promote the stability and sound the
financial structure in the economy. This is because the BNM will always reserve the
sufficient money supply to the public
BNM also will influence the situation of credit in the advantages of our country
Malaysia.
The BNM will always be there to supervised the foreign exchange and money market
to ensure it will not been misuse by the others to perform any money laundering
activity.
BNM also act as a leader and the last resort to all the banks. For example, when a
commercial bank face the situation that they do not have the enough money supply to
fulfilled their customers needs, the bank will either choose to borrow from the
other nearest branches, or other bank nearest branches. When in the case of other bank
also have not enough money supply, the bank will then need to take from the BNM
too, as the BNM is the last resort for them, because the bank cannot comes to the
situation that did not have enough money for the public to withdraw as it may lead to
unstable economy and market will happen.

QUESTION 3
Common Stock
A common stock have two principles where the principle of the governance and
ownership, and the other one is residual and limited liability. The common stock is an
action of representing the ownership stake in the respective corporation. The company
will laid down in the charter of incorporation with the common stock. The charter will
then give out the number for authorised and issue shares. The authorised shares is the
maximum limit that the related company to be entitle to issue out the shares.
While, the shareholder of the company is the part of the owner for the companys
assets and the profit of it. The common share has no any maturity date or tenure. The
share can be claim when the company is closing down after the company has clear up
the liability from the other creditors such as government, and banks.
A common shareholder will have a limited rights in the company. For example, the
common shareholder will have the rights to give a vote to choose the right person as
the board of directors. Besides this, the common shareholders will have the rights to
vote in certain major changes onto the company, such as consolidation, or dissolution.
Therefore every single common shareholders will have a single vote during the
participation in the companys annual general meeting too.
In the cycle of the company, the shareholders will choose the board of directors by
voting, the board of directors will then choose the suitable individual to become the
manager who going to run out the companys business as the board of directors will
just meet each other once in a blue moon. But there are problems that arise due to the
happened of the conflict of interest between the ultimate owner (shareholder) and the
agent (manager / CEO).
The common stock from most of the large company, can be sold and bought freely in
the market on one or more than one stock exchanges. If the company is closely held,
then the companys stock can be say that is not liquid.
In the residual claim and limited liability, the common shareholders, who are the part
of the owner on the company, are entitled to the profits, after the company has cleared
up the liabilities of the company. The profits will then distributed to all the
shareholders eventually, such as by dividends. The shareholders is the residual owners
of the firm, where they was the last person to receive the income and the residual
value from the company. Although the shareholders is the last person to get back their
money, but they still have their own limits where they do not bear any responsibility
on the companys financial such as liabilities than what they have invested on the
company buy buying their common stock. Therefore, the most that the shareholder
will lose is just their initial deposits for investment.

Preferred Stock
A preferred stock is a hybrid stock on the equity and debt. To make it more clear, a
preferred stock can be say that it almost like the bond, as the bond will give out the

fixed dividend to the bond holder each year, and for preferred stock, it just like a bond
that have an infinite-maturity. When the preferred stockholder existed in the company,
the preferred stockholder will have the priority to get their dividend first than the
common shareholder. Once the company has not pay out all the outstanding fixed
dividend to the preferred shareholder, the common shareholder will not get their
dividend yet. When comes to the situation, where the company has to liquidated, the
preferred shareholder will get their priority in the terms of assets claim than the
common shareholders. Unlike the common shareholders, the preferred shareholder
will get their dividend as predetermined, while the common shareholders will depend
on the companys performance.
Besides that, a preferred shareholders does not have any rights to vote in any board
directors election. Compare to the common shareholders, the common shareholders
can still vote for the election of the board directors. There are few types of the
preferred shares, such as cumulative, participating, redeemable, and convertible.
Therefore, the ranking of preferred shareholder is ahead than the common
shareholder.

QUESTION 4
Inflation
Inflation is a term that can be defined as the most important term in the investment as
it will determine all the real rate of the returns that you will get from all your
investment. Therefore, a company profit can be affected by the inflation, for example,
if the inflation is low, the input cost will also become low, by the way, the rate of the
decreases depends on the cost that the company is able to pass to its consumers.
The market will suffer more if the interest rate is cheaper investment on vehicle than
the stocks. When this happen, the investors will then sell off all their stocks and invest
in the bonds instead.

GDP (Gross Domestic Product)

GDP is a measurement of the total value of the services and goods that produced in a
respective country. The differences can be seen when it compared with the previous
years reading, the differences that shown can shows clearly that whether the
economy of the country is growing or contracting. Therefore, the GDP will normally
published by quarterly.

Labour Market

In the labour market, the unemployment will keep on increase as the economic is
meltdown, whereby the company will stop the recruitment and reducing the capacity
of the workers. And this will affect the countrys economic status.

Bottom Line
From all the information that you have collect, you will be able to know more about
the current status of the country as you have already understand it. For example, when
the market have already slowed down, that is not necessary that it is a bad sign as this
might be a golden opportunity for you to invest in the good stocks with a good buying
prices.