CHAPTER 1:

OVERVIEW OF
FINANCIAL MARKET
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 Chapter Outline
◦Definition
◦Types
◦The Malaysian Market Structure

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 Introduction
Market traditionally can be defined as a place where the buyer and
seller meet together to transact a business.
✓Buyer – take delivery of a good upon payment
✓Seller – make delivery of a good for payment
Traditionally: both buyer and seller must meet at one designated place
in person
Modern: a market does not necessarily require a physical place
✓ Not all business transactions require immediate settlement.
✓Buyers and sellers are allowed to delay the delivery of goods and
payment until a specified future date known as the expiry date.
✓Forward (delayed) transaction in derivative market (specifies today an
agreement to be fulfilled at a later date.

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 Malaysian
Financial System

Securities Bank Negara

Commission Malaysia

Financial Banking Non-Bank

Financial
Markets System Intermediary

Money Capital Derivatives Offshore Commercial Provident &

Market Market market market Bank Pension Funds

Money Equity Finance Development

Labuan Finance
Market markets Companies Institutions

Foreign
Investment
Exchange Bond Markets Savings Institutions
Bank
Market

Structure of the
Insurance
Others Companies

Malaysian
Financial System -ERIMALIDA YAZI- Other Financial
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Intermediaries
 Financial
Market

Money Capital
Market Market

Marketable Foreign Cash Derivative

Securities Exchange Market Market

Short term Foreign Primary

Options
instruments Currencies Market

Structure of the Secondary Futures

Malaysian Market
Financial Market
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Money Market vs. Capital Market
Money Market Capital Market

Deals with financial instruments Traded instruments with maturity of

which have a maturity of less than more than one year.
one calendar year. Example:
Example: -Shares
- treasury bill
-Bonds
- bankers acceptance -Debentures
- negotiable certificate of deposit Purpose: Help in fulfilling long term
- Commercial paper credit requirements of the
business.
Purpose: Helps in fulfilling short
term credit requirements of the
business

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 Cash Market vs. Derivative Market
Cash market
◦ Also known as spot or physical
market.
◦ Spot: spot transaction-immediate
delivery of goods (physical or
financial assets) by a seller and
payment by a buyer.
◦ Physical: physical place
◦ Normally the traditional markets such
as mini-market, super-market etc.
◦ Financial markets: buyers & sellers do
not have to meet at specified
physical place (ex: stock market). –
communication through phone call
etc.
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Derivative Market
◦ Derivative is a security with a price
that is dependent upon or derived
from one or more underlying assets.
◦ The derivative itself is a contract
between two or more parties based
upon the asset(s).
◦ Its value is determined by fluctuations
in the underlying asset. The most
common underlying assets include
stocks, bonds, commodities,
currencies, interest rates and market
indexes.
◦ Buyer not required to make
immediate payment or seller deliver
goods immediately. (can delay the
delivery of goods and cash later
date) – forward or futures
◦ Where the standardized contracts are
bought and sold, not the underlying
commodities themselves.
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 Primary Market vs. Secondary Market

Primary market Secondary market

Markets where new shares are Markets where existing shares
issued are traded
Involve firm that issues the shares Not involve firm that issues the
and all prospective buyers. shares
The securities are being offered The issuer does not receive the
by the issuer and the issuer proceeds but goes to the
receives cash proceeds from the current owner/seller.
new issues.
The process can be done Secondary market consist of:
through: 1. Main Market
1. Initial Public Offering (IPO). 2. ACE (access, certainty and
2. Private / Direct Placement efficiency) Market
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 ANY QUESTIONS
End of Chapter 1

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