Abstract

The purpose of this study is to identify the variables that have a significant impact on
liability derivatives in Malaysian banks. The data used are from three commercial
banks; Maybank, RHB and Public Bank, and three Islamic banks; RHB Islamic, Public
Islamic Bank and Bank Islam over the financial year 2014 and 2019. The secondary
data used in this paper are Total Deposits, Total Equity, Total Income, Interbank
Rates, Gross Domestic Products (GDP) and Crude Oil Price. The primary variable in
this paper is the total liabilities of derivatives that represent the performance of the
bank. This paper used multiple regression as the methodology. The entire process in
this paper implemented using Microsoft Excel. Finally, this paper also discusses the
comparison of the impact of Covid-19 on Malaysia and another Asian Country,
Indonesia.

1. Introduction
Current economic development, which is increasingly developing, brings not
only opportunities for banking business, but also enormous risks. Banks have a
vital role to play in the economy of a country. Banks act as mediation institutions
that are central to the efficiency of the country’s economic system. The risk that
banks will face is the level of uncertainty as to the revenue expected to be received.
These risks are essential for the company to manage in such a way that they can
survive. Various ways to manage these risks are called risk management, and
some examples of the risks that banks may face include credit risk, investment
risk, liquidity risk, operating risk, and fraud risk. The bank is attracting deposits and
making loans. The disparity between interest rates on loans and deposits
generates a profit (Eflon, 2009). Credit risk is the biggest thing in the world of
banking. As a result, one of the solutions that have been widely used in the banking
world is derivatives. Banks have two motives for holding derivatives instruments in
their portfolios. One of the motives for holding derivatives is to hedge the risks of
the banks, while another motive for banks to hold derivatives portfolio is for
speculative reasons (Taşkın & Sarıyer, 2020).
The financial market is overgrowing. The growth in the financial market is
indicated by the discovery of a new generation of financial products to obtain high
returns with a controllable level of risk. Some of these products are referred to as
derivative transactions. Since the 1980s, derivatives have proliferated, and a lot of
large companies around the world have used this instrument extensively to obtain
cheap sources of funding (Widodo, 2009). From the point of view of bank
management and accountants, although their value as a means of benefit and risk,

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derivatives are considered as off-balance sheet items (Choi & Elyasiani, 1997).
However, derivative contracts vary from conventional off-balance sheet
operations, such as letters of credits and loan obligations. One distinction is that
the return on these contracts depends on the underlying primary market asset. In
other words, the derivative contract is an innovative product, the value of which
depends on, or derives from, the value of the underlying variable, and can be
traded in derivative markets, either on the exchange or over the counter (OTC)
(Ho, et al., 2019). Derivatives are used by investment managers and or portfolio
management, corporations and financial institutions as well as individual investors
to hedge their position against the risks of fluctuation in stock and commodity
prices, interest rates, foreign exchange rates without changing the physical
position of the underlying product. There are many financial instruments that can
be categorized as derivatives, but options or futures contracts and swaps are the
most commonly known. The wide range of derivatives and derivatives strategies
that exist today boost the ability of businesses to manage their exposure to
financial risk in an environment characterized by highly unpredictable exchange
rates, interest rates, and commodity prices.
In 1980, The Kuala Lumpur Commodities Exchange (KLCE) was the first
futures exchange founded in Malaysia and all of South East Asia (Bacha &
Merican, 2004). In the same year, the agreement for Crude Palm Oil (CPO) was
the first derivative commodity to be announced by KLCE. Kuala Lumpur Composite
Index (KLCI) was first dispatched in 1995 by Kuala Lumpur Options and Financial
Futures Exchange (KLOFFE) (Eang, et al., 2013). As a result of the establishment
of this index futures contract, it turned into the second derivative exchange in Asia.
The Commodity Exchange (COMMEX), a merger of Malaysia Monetary Exchange
(MME) and KLCE, as a result of MME’s inability to maintain a single contract on
its own. In December 2000, KLOFFE and COMMEX incorporated into a single
exchange. They formed as the Malaysian Derivatives Exchange (MDEX), owned
by Kuala Lumpur Stock Exchange (KLSE). MDEX is responsible for the derivatives
activities and was renamed as Bursa Malaysia Derivatives Berhad. Bursa Malaysia
Derivatives Berhad has been developed to meet the increasing need for financial
risk management in Malaysia.
Economic uncertainty indeed makes every company vulnerable to risk. Risk
management techniques that are cost-effective and resource-efficient are
becoming increasingly crucial for the success of any enterprise. As of now,
derivatives, as risk hedging instruments, have become popular, particularly in
money related institution (Zakaria, 2017). The invention of financial derivatives has

2
 filled in as a risk minimizer mechanism for managers of financial institutions in
many developed countries. Banking institutions may utilize derivatives as a risk
management tool to hedge on-balance sheet transactions by speculating on
exchange rates movements, interest rates, and commodity prices. These
advantages, therefore, urge banks to position their businesses and enhance their
risk management performance. As a result, the effectiveness of risk management
should be quantified in order to preserve value creation. Also, to prevent the
occurrence of adverse events that might not have been adequately considered in
the relevant business scenario.
This study aims to measure the impact of the use of derivatives on the
efficiency of banking risk management among banks in Malaysia. It also compares
the performance of commercial and Islamic banks performance from 2015 to 2019.
This study provides proof of the macroeconomic and bank determinants
influencing the performance of each bank chosen. At the end of the study, the
impact of Covid-19 on Malaysia and comparisons with another Asian country,
Indonesia, on economic performance will be discussed.

2. Literature Review
Derivatives are classified as financial assets where their fair value is positive
and financial liabilities where their fair value is negative. The fair value of the
derivative is the value of an underlying asset. The effect of derivative usage on
banking efficiency in this paper will take the view of derivative liabilities.
Total deposits are defined as the total amount of personal money placed in the
financial institution for security purposes or safekeeping. Demands deposits, term
deposits, and interest & non-interest-bearing deposits are cumulative examples of
deposit products. Which, those are summed up in order to get the value of overall
deposits (KnowYourBank.com, 2015). Ghosh (2017) who studied the effect of
derivative instruments on bank risk and profitability, found that overall deposits had
a positive impact on the use of derivative and profits.
Total equity is defined as the net difference between the total assets of the
company and the total liabilities of the company. Research conducted by Chan &
Karim (2010) on bank efficiency, profitability and equity capital found that equity to
the total asset ratio had a negative effect on efficiency, indicating that either the
use of debt in financing bank operations or the lower regulatory condition
contributes to higher efficiency. Research by Rivas, et al. (2006) on the use of
derivatives in Latin American Banks found that equity ratio had a positive effect on
the bank's efficiency because high total equity means that the bank can cover all

3
its debt with the total assets and still have the remaining assets available after all
its debts have been paid out.
Total income is defined as net profit, net earnings or the amount of revenue left
over after the withdrawal of all expenses, taxes and costs (Bankrate, 2020). Total
income has been a measurement of the bank’s efficiency. According to Sufian
(2009), who examined the determinants of bank efficiency during in the context of
an unstable macroeconomic environment, banks tend to become more
managerially efficient as they increase their income from non-interest sources.
While the study by Alwi, et al. (2020), which examined the performance of the
derivatives use among conventional and Islamic banks in Malaysia, found that total
net income had a negative relationship with total asset derivatives.
Interbank rate is the interest rate charged on short-term loans made between
banks and also refers to the interest rate charged when banks engage in foreign
currency wholesale transactions with banks in other countries (Kenton, 2019). In
the case of the commercial banks, the interbank rate used in this study is interest
rate swap. Based on the study by Boukrami (2002), which looked at the use of
interest rate swaps by commercial banks, it was found that larger banks, measured
by the number of overall assets, tend to use interest rate swaps for hedge
purposes more intensively than smaller banks. In the case of Islamic banks, the
interbank rate used in this study is Islamic interbank rate, which is defined as the
regular weighted average rate of Mudharabah interbank investment at the Islamic
Interbank Money Market (IIMM), Kuala Lumpur. Bacha (2008), a researcher on the
Islamic interbank money market and the Malaysian dual banking system, found
that the Islamic interbank rate plays a crucial role in the profitability of Islamic
banks. In addition, he found that the Islamic money market profit is closely
associated and shifts in tandem with traditional money market rates.
Interest rate swap is an arrangement in which two parties traded the net
interest payments on an amount known as the notional principal that never
exchanged. By convention, the swap interest rates are set in such a way that the
swap has a market value of zero at the point of initiation. Suppose the rise in
interest rate are not expected. In that case, the market value of the swap will
change, becoming an asset for one part and a liability for the other party. Interest
rate instability is the most significant risk of swaps (Gorton & Rosen, 1995). It exists
because of changes in interest rates affect the valuation of the swap. The analysis
by Gorton & Rosen (1995) found that, considering the net shortening of the
banking system over the long term, an increase in interest rates could significantly
weaken equity in the banking system. It can therefore be inferred that changes in

4
the interest rate, which will affect the value of the swap, will have an impact on the
equity of the banking system.
Supply & demand and market sentiment are the two primary factors that affect
the price of oil. In the case of supply and demand, as demand increases or supply
decreases, the price should rise and vice versa. For the market sentiment, the
price of oil is set on the oil futures market (Kosakiwski, 2020).
The gross domestic product is defined as the overall value-added generated
by the production of goods and services in a country for a given period of time. Vo,
et al. (2019) who analyzed the relationship between the derivatives market and
economic growth found that the market for derivatives and economic growth had
a close reversal relationship, while Levine (2005) reported a favourable positive
relationship between intermediary financial production and economic growth.
To measure the impact of derivatives usage on banking efficiency, we use
derivatives liabilities as the dependent variable. Whereas for the independent
variables, we use four financial models and two macroeconomic variables. As
such, the regression equation is specified as:

ln 𝐷𝐿 = 𝛽0 + 𝛽1 𝑙𝑛 𝑇𝐷 + 𝛽2 ln 𝑇𝐸 + 𝛽3 ln 𝑇𝐼 + 𝛽4 ln 𝐼𝑅 + 𝛽5 ln 𝐶𝑂𝑃 + 𝛽6 ln 𝐺𝐷𝑃 + 𝜀

Where:

 ln DL is the natural log of Derivative Liabilities in the unit of RM ‘000 per

financial year
 ln TD is the natural log of Total Deposits in the unit of RM ‘000 per financial
year
 ln TE is the natural log of Total Equity in the unit of RM ‘000 per financial year
 ln TI is the natural log of Total Income in the unit of RM ‘000 per financial year
 ln IR is the natural log of the average of Interbank Swap Rate (for commercial
banks) and Islamic Interbank Rate (for Islamic banks) in a year (12 months) in
the unit of RM per financial year
 ln COP is the natural log of the average of Crude Oil Price per Barrel in a year
(12 months) in the unit of RM per financial year
 ln GDP is the natural log of Gross Domestic Product per capita in the unit of
current US dollars per financial year
 Where 𝜀 is the error term

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The data source for the variables used are shown in Table 1.

Table 1: Data Sources of the Variables

Variables Data Source
Total Derivatives Liabilities Annual Report (Bank’s Website)
Total Deposits Annual Report (Bank’s Website)
Total Equity Annual Report (Bank’s Website)
Total Income Annual Report (Bank’s Website)
Interbank Swap Rate Bank Negara Malaysia
Islamic Interbank Rate Bank Negara Malaysia
Crude Oil Price World Development Indicators
GDP World Development Indicators

3. Analysis
3.1. Correlation
3.1.1. Commercial Banks
The correlation between the variables for Commercial Banks is,
as shown in Table 2.
Table 2: Correlation Table (Commercial Banks)
Derivative Liabilities Total Deposits Total Equity Total Income Interbank Swap Crude Oil Price GDP
Derivative Liabilities 1
Total Deposits 0.374747945 1
Total Equity 0.465788748 0.98209197 1
Total Income -0.079806876 0.566157538 0.512981288 1
Interbank Swap -0.201001373 0.118328622 0.18045636 0.279074703 1
Crude Oil Price -0.292931327 0.10774067 0.166072737 0.421799851 0.673798333 1
GDP -0.277254388 0.125431023 0.192735025 0.342317061 0.855331071 0.932518774 1

Based on the correlation table,

 Total deposits have a positive relationship with derivative liabilities.
 Total equity has a slightly stronger positive relationship with
derivative liabilities compared to total deposits.
 Total income has a weak negative relationship with derivative
liabilities.
 Interbank swap rate has a negative relationship with derivative
liabilities, which is more robust compared to total income.
 Crude oil price and GDP has a relatively similar negative
relationship with derivative liabilities.
3.1.2. Islamic Banks
The correlation between the variables for Islamic Banks is, as
shown in table 3.

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 Table 3: Correlation Table (Islamic Banks)
Derivative Liabilities Total Deposits Total Equity Total Income Islamic Interbank Rate Crude Oil Price GDP
Derivative Liabilities 1
Total Deposits -0.278670888 1
Total Equity 0.001369492 0.84912588 1
Total Income -0.040926968 0.771158989 0.941237447 1
Islamic Interbank Rate -0.30723236 -0.163327872 -0.266190123 -0.220720383 1
Crude Oil Price -0.024646893 0.621960236 0.64184471 0.506155983 0.040627795 1
GDP 0.040980349 0.650354496 0.734800146 0.601869219 -0.022444334 0.932518774 1

Based on the correlation table,

 Total deposits have a negative relationship with derivative liabilities.
 Total equity has a weak positive relationship with derivative
liabilities.
 Total income has a weak negative relationship with derivative
liabilities.
 Islamic interbank rate has a negative relationship with derivative
liabilities, which is more vital compared to total income.
 The crude oil price has a weak negative relationship with derivative
liabilities.
 GDP has a weak positive relationship with derivative liabilities
3.2. Multiple Regression
3.2.1. Commercial Banks
The diagnostic tests for Commercial Banks’ multiple regression:
1. Overall Goodness-of-fit
The regression statistics for Commercial Banks are as shown in Table 4.
Table 4: Regression Statistics (Commercial Banks)
Regression Statistics
Multiple R 0.85552008
R Square 0.731914607
Adjusted R Square 0.530850563
Standard Error 0.832170257
Observations 15
The coefficient of determination in Table 4 is 0.731914607 which 73.19%
of the variation in derivative liabilities for the commercial banks is
explained by total deposits, total equity, total income, interbank swap,
crude oil price and GDP. The remaining 26.80% is explained by other
factors.
2. ANOVA Table
The statistical significance of the independent variables as predictors of
the dependent variable is as shown in Table 5.

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 Table 5: ANOVA (Commercial Banks)
ANOVA
df SS MS F Significance F
Regression 6 15.12521752 2.520869587 3.640206329 0.047957669
Residual 8 5.540058688 0.692507336
Total 14 20.66527621

Significance F is 0.04796, which is less than 0.05. This indicates that the
independent variable has explanatory power beyond what might be
expected by chance. The F statistical test and the coefficient of multiple
correlations suggest that the regression equation fits the data well.
3. Significance of Regression Coefficients
The significance of the independent variables is shown in Table 6.
Table 6: Regression Coefficients (Commercial Banks)
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 177.158281 341.2778193 0.519102828 0.617740044 -609.8297815 964.1463435 -609.8297815 964.1463435
Total Deposits -9.819046225 3.327160164 -2.951179307 0.018392499 -17.49149132 -2.146601129 -17.49149132 -2.146601129
Total Equity 9.794276094 2.801539101 3.496034052 0.008126189 3.333915343 16.25463685 3.333915343 16.25463685
Total Income 0.232716928 0.495021612 0.470114683 0.650822287 -0.908804956 1.374238813 -0.908804956 1.374238813
Interbank Swap -0.474660308 3.241946488 -0.146412135 0.887218267 -7.950602314 7.001281699 -7.950602314 7.001281699
Crude Oil Price -1.973406224 5.683770526 -0.347200193 0.737397969 -15.08020456 11.13339211 -15.08020456 11.13339211
GDP -4.957979934 14.76950762 -0.335690266 0.74573859 -39.01652558 29.10056571 -39.01652558 29.10056571

*significant at 5% significance level

 From Table 6, the p-value for total deposits is 0.0184, which is less
than 0.05. Indicating that total deposits are significant at a 5%
significance level
 From Table 6, the p-value for total equity is 0.0081, which is less than
0.05. Indicating that total equity is significant at a 5% significance level.
Total equity is the most significant variable in the Commercial Banks
model
 From Table 6, the p-value for total income is 0.6508, which is more
than 0.05. Indicating that total income is not significant at a 5%
significance level
 From Table 6, the p-value for the interbank swap rate is 0.8872, which
is more than 0.05. Indicating that interbank swap rate is not significant
at a 5% significance level
 From Table 6, the p-value for the crude oil price is 0.7374, which is
more than 0.05. Indicating that crude oil price is not significant at a 5%
significance level
 From Table 6, the p-value for GDP is 0.7457, which is more than 0.05.
indicating that GDP is not significant at a 5% significance level

8
3.2.2. Islamic Banks
The diagnostic tests for Islamic Banks’ multiple regression:
1. Overall Goodness-of-fit
The regression statistics for Islamic Banks are as shown in Table 7.
Table 7: Regression Statistics (Islamic Banks)
Regression Statistics
Multiple R 0.62447142
R Square 0.38996455
Adjusted R Square -0.06756203
Standard Error 1.45111771
Observations 15
The coefficient of determination in Table 7 is 0.38996455 which 39% of
the variation in derivative liabilities for Islamic bank is explained by total
deposits, total equity, total income, interbank swap, crude oil price and
GDP. The remaining 61% is explained by other factors.
2. ANOVA Table
The statistical significance of the independent variables as predictors of
the dependent variable is as shown in Table 8.
Table 8: ANOVA (Islamic Banks)
ANOVA
df SS MS F Significance F
Regression 6 10.76875098 1.79479183 0.85233201 0.5651222
Residual 8 16.84594096 2.10574262
Total 14 27.61469194

Significance F is 0.5651, which is more than 0.05. This indicates that the
F statistical test and the multiple correlation coefficient indicate that the
regression equation does not fit the data correctly.
3. Significance of Regression Coefficients
The significance of the independent variables is shown in Table 9.
Table 9: Regression Coefficients (Islamic Banks)
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -11.2432075 350.0658464 -0.03211741 0.97516526 -818.496497 796.010082 -818.496497 796.010082
Total Deposits -6.8245237 3.824498427 -1.7844232 0.11219065 -15.6438329 1.99478548 -15.6438329 1.99478548
Total Equity 5.80857171 7.287948872 0.79701049 0.44845067 -10.9974685 22.6146119 -10.9974685 22.6146119
Total Income -2.22599938 5.001866473 -0.44503375 0.66809051 -13.7603241 9.30832539 -13.7603241 9.30832539
Islamic Interbank Rate -14.3328615 15.88591442 -0.90223711 0.39328436 -50.9658458 22.3001229 -50.9658458 22.3001229
Crude Oil Price -0.56693559 6.818033523 -0.08315236 0.93577338 -16.2893491 15.1554779 -16.2893491 15.1554779
GDP 3.85673517 14.92235341 0.25845355 0.80258201 -30.5542735 38.2677438 -30.5542735 38.2677438

*significant at 5% significance level

 From Table 9, the p-value for total deposits is 0.1122, which is more
than 0.05. Indicating that total deposits are not significant at 5%
significance level

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 From Table 9, the p-value for total equity is 0.4485, which is more than
0.05. Indicating that total equity is not significant at a 5% significance
level
 From Table 9, the p-value for total income is 0.6681, which is more
than 0.05. Indicating that total income is not significant at a 5%
significance level
 From Table 9, the p-value for the Islamic interbank rate is 0.3933,
which is more than 0.05. Indicating that Islamic interbank rate is not
significant at a 5% significance level
 From Table 9, the p-value for the crude oil price is 0.9358, which is
more than 0.05. Indicating that crude oil price is not significant at a 5%
significance level
 From Table 9, the p-value for GDP is 0.8026, which is more than 0.05.
Indicating that GDP is not significant at a 5% significance level

There are no factors that are significant at a 5% significance level from the
p-value obtained. Since the highest p-value of this test is the p-value for
the crude oil price, the second regression analysis for Islamic banks is
made. The second regression analysis has removed the crude oil price
factor, and everything else remained the same.

The significance of the independent variables removing crude oil price is

shown in Table 10.
Table 10: Regression Coefficients without Crude Oil Price (Islamic
Banks)
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 14.34222202 157.4659942 0.091081392 0.929422892 -341.8706047 370.5550487 -341.8706047 370.5550487
Total Deposits -6.903460612 3.494436488 -1.975557615 0.030827517 -14.80842514 1.001503919 -14.80842514 1.001503919
Total Equity 5.860276074 6.849047431 0.855633741 0.414398495 -9.63334563 21.35389778 -9.63334563 21.35389778
Total Income -2.200876215 4.709227603 -0.46735397 0.651355299 -12.85388917 8.452136738 -12.85388917 8.452136738
GDP 2.792295315 7.233248136 0.386036157 0.708437018 -13.57044876 19.1550394 -13.57044876 19.1550394
Islamic Interbank Rate -14.46720354 14.90616363 -0.970551773 0.357130448 -48.18728836 19.25288128 -48.18728836 19.25288128

*significant at 5% significance level

 From Table 10, the p-value for total deposits is 0.0308, which is less
than 0.05. Indicating that total deposits are significant at a 5%
significance level
 From Table 10, the p-value for total equity is 0.4144, which is more
than 0.05. Indicating that total equity is not significant at a 5%
significance level

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  From Table 10, the p-value for total income is 0.6514, which is more
than 0.05. Indicating that total income is not significant at a 5%
significance level
 From Table 10, the p-value for the Islamic interbank rate is 0.3571,
which is more than 0.05. Indicating that Islamic interbank rate is not
significant at a 5% significance level
 From Table 10, the p-value for GDP is 0.7084, which is more than
0.05. Indicating that GDP is not significant at a 5% significance level
4. Conclusion
Based on the above analysis, it can be concluded that only some variables
impacted the derivative liabilities. Total deposits and total equity are significant for
commercial banks derivative liabilities, while only total deposits that are significant
for Islamic banks.
In the case of commercial banks, the overall goodness-of-fit test gives a
relatively high R-squared value, indicating a strong positive linear relationship
between the dependent variable and the chosen independent variables. There are
two factors that are significant to derivative liabilities for commercial banks, which
are total deposits and total equity.
The first factor is the total deposits. The study by Alwi, et al. (2020) and Ghosh
(2017) has shown that total deposits have a significant positive impact on total
assets derivatives. Which consequently have a significant positive impact on total
derivative liabilities as well. Since the total deposits used in this paper are deposits
made by customers whose withdrawals may be made at a specific time following
the agreement between the depository and the bank, the changes or uncertainties
which pose a risk to the bank must have a significant impact on the bank. As a
result, derivative liabilities and total deposits have a significant positive
relationship. The second factor is the total equity. As total equity is the sum of total
assets minus total liabilities, the increase in derivative liabilities will increase total
liabilities, resulting in lower total equity. The study by Rivas, et al. (2006) on the
use of derivatives in Latin American Banks found that the equity ratio had a positive
effect on the efficiency of the bank. The equity ratio is calculated by comparing the
total equity of the company to its total assets. As a result, the equity ratio has a
positive relationship with total equity. In addition, it can be concluded that the use
of derivatives could also have a positive effect on total equity.
In the case of Islamic banks, the overall goodness-of-fit test gives a low R-
squared value indicating that the independent variables chosen do not explain
much in the variation of the dependent variable. Following the removal of crude oil

11
 price from the regression analysis of Islamic banks, it is found that total deposits
are significant to derivative liabilities. The result of commercial banks and Islamic
banks is the same in terms of the significance of total deposits to derivative
liabilities. The difference is that while total deposits have a positive relationship
with derivative liabilities in commercial banks, total deposits have a negative
relationship with derivative liabilities in Islamic banks. It is because the contract
arrangement between depositors and Islamic banks does not pre-determine any
rate of return, it only specifies the ratio by which profits and losses are allocated
between the parties to the deposit contract (Al-Muharrami, 2014).

5. Impact of Covid-19 on Economic Performance in Malaysia and Indonesia

The world is shocked by the spread of the outbreak of Covid-19 in China. As a
result of this virus, many people in the world have died. China’s economy also
collapsed due to the number of companies that had to close down. Given that
China is the second-largest economy in the world, the disruption of China's
economy will have an impact on the economy of the other country.

5.1. Malaysia
The first reported case in Malaysia was less than 48 hours after the first
reported case in Singapore on 25 January 2020 (Shah, et al., 2020). The
government’s abrupt implementation of the Movement Control Order
(MCO) has put various segments of the economy at risk. According to
Hirshmann (2020), after manufacturing and commodities, tourism is the
third-largest contributor to Malaysia’s GDP. Anthony Dass, Chief
Economist of AmBank Group, said that the direct harm caused by the virus
could be seen in the tourism and travel, manufacturing, construction,
mining and agriculture industries (Murugiah, 2020), which are the three
largest contributors to Malaysia’s GDP as mentioned by Hirshmann (2020).
The report by the Department of Statistics Malaysia (2020) reveals that
Malaysia’s GDP contracted by 17.1% in the second quarter of 2020 and it
was the lowest recorded since the fourth quarter of 1998 which was -
11.2%.
According to the Australian Trade Commission (2013), Malaysia is the
second-largest producer of oil and natural gas in Southeast Asia. Bursa
Malaysia recorded an increase in trade in crude palm oil through
exchanges in October 2020. The increase is twenty times of Malaysia’s
production as of September 2020. Total trading volume for the crude palm

12
 oil futures contract (FCPO) in Bursa Malaysia Derivatives (BMD) reached
12.0 million lots, beating the previous record of 11.91 million lots in 2017
(Zainul, 2020). An increased volume of trade in crude palm oil in Malaysia
is the effect of FCPO has been widely used as a hedging tool against the
price volatility caused by this pandemic.

5.2. Indonesia
It is undeniably true that this virus has caused many adverse effects. In
Indonesia, Zuraya (2020) describes the three significant impacts of the
Covid-19 pandemic on the economy of Indonesia. The first impact is a
reduction in household consumption or purchasing power, which is the
support of 60% of the economy to decline. The second impact is that it has
caused prolonged uncertainty in such a way that investment weakens and
has implications for the cessation of business. The last is that it weakened
the economy, causing prices commodities fell, and Indonesia's exports to
several countries have also stopped. The impacts described by Zuraya
(2020) are reflected in a report by the Indonesian Central Statistics Agency,
Badan Pusat Statistik (BPS), which stated that Indonesia’s economic
growth was contracted by 5.32% in the second quarter of 2020. This figure
is inversely proportional to Indonesia’s economic growth of 5.05% in the
second quarter of 2019.
The impact of Covid-19 on Indonesia’s financial market has
increasingly demonstrated the need to strengthen hedge mechanisms to
facilitate financing, assist investors in managing stock and commodity
volatility as well as duration and exchange rate mismatches. Sya'bani
(2020) said that the range of derivative products in Indonesia is still
minimal. From the Indonesia Stock Exchange (2020), there are only two
equity derivative products traded, which are IDX LQ45 Futures and
Indonesia Government Bond Futures. On the OTC market, the volume of
transactions in Indonesia is relatively small compared to neighbouring
countries. This minimal variation in derivative products is due to a lack of
understanding by the public and law enforcement authorities.

13
References
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16
Assignment 2
ORIGINALITY REPORT

17 %
SIMILARITY INDEX
6%
INTERNET SOURCES
3%
PUBLICATIONS
12%
STUDENT PAPERS

PRIMARY SOURCES

1
Submitted to Taylor’s Education Group
Student Paper 5%
2
Gary Gorton, Richard Rosen. "Banks and
Derivatives", NBER Macroeconomics Annual,
1%
1995
Publication

3
eprints.utar.edu.my
Internet Source 1%
4
Submitted to Universiti Teknologi MARA
Student Paper 1%
5
Sok Gee Chan. "Bank efficiency, profitability and
equity capital: evidence from developing
1%
countries", American J of Finance and
Accounting, 2010
Publication

6
Submitted to Monash University
Student Paper 1%
7
Submitted to University of Mindanao
Student Paper 1%
8
www.knowyourbank.com
Internet Source 1%
9
www.intralot.com
Internet Source 1%
10
Submitted to University of Hong Kong
Student Paper <1%
11
Submitted to S.P. Jain Institute of Management
and Research, Mumbai
<1%
Student Paper

12
Submitted to Icon College of Technology and
Management
<1%
Student Paper

13
Submitted to Brickfields Asia College
Student Paper <1%
14
link.springer.com
Internet Source <1%
15
Submitted to Sogang University
Student Paper <1%
16
www.q8trade.net
Internet Source <1%
17
Submitted to University of Central England in
Birmingham
<1%
Student Paper

18
Submitted to Online Education Services
 Student Paper

<1%
19
www.forextime.com
Internet Source <1%
20
www.ntaccounts.org
Internet Source <1%
21
www.coursehero.com
Internet Source <1%
22
www.aceh-eye.org
Internet Source <1%
23
moneycompass.com.my
Internet Source <1%
24
www.econstor.eu
Internet Source <1%
25
Wuyang Hu, Wiktor L. Adamowicz, Michele M.
Veeman. "Labeling Context and Reference
<1%
Point Effects in Models of Food Attribute
Demand", American Journal of Agricultural
Economics, 2006
Publication

26
Submitted to London School of Commerce
Student Paper <1%
27
docplayer.net
Internet Source <1%