Tutorial 2

1. Discuss the following services provided by the investment Bank:

(a) Corporate Finance
- Corporate finance is a traditional aspect of Investment banks, which involves helping
customers raise funds in the capital market.
- Assist in issuing shares and bonds in the primary market.
- Advise customers on mergers, acquisition, sale or dissolution of shares.
- Involves valuation of shares
- Advise on proposed Right issue, Bonus issue, Share split etc
- Capital raising exercise.
- Restructuring, recapitalising, leverage buy outs etc

- Provide advisory services

- Including raising capital (including IPOs- bonds/ shares)
- Corporate finance is a traditional aspect of Investment banks, which involves helping
customers raise in the capital market.

(b) Underwriting services

- When a company decides to go public and needs equity funding, investment banks
provide underwriting services for new stock issues. Underwriting is the process of an
investment bank purchasing agreed-upon shares of new stock and reselling them on a
stock exchange.
- Underwriting is the process by which investment bankers raise investment capital from
investors on behalf of corporations and government that are issuing either equity or debt
securities.
-new issues are usually brought to market by an underwriting syndicate, in which each
firm takes the responsibility, as well as the risk, of selling its specific allotment.

-Is the most profitable area of an investment bank, it is usually responsible for a much
larger amount of revenue than the other divisions.
- Underwriter guarantee that all shares will be sold-any unsold shares will be taken up by
the underwriter and will be taken in as proprietary trading.

2. Discuss FIVE(5) reasons why development financial institutions (DFIs) are important in the
economy and list THREE (3) types of DFIs.

i. The Development Financial Institutions in Malaysia are specialised institutions established by

the government to develop and promote the country's socio-economic development.

ii. Promote strategic sectors of the economy, such as agriculture, international trade, housing,
tourism, infrastructure, and green industries, among other sectors

iii. They provide financing, vis-à- vis special programmes and loan schemes, often at more
favourable rates than those offered by the commercial banks.
 iv. They provide a range of loan products, from short-term to long-term financing in the form of
term loans, guarantees, revolving credit and contract financing, among others.
v. DFIs also provide technical assistance, platform for networking and promotion for their
clients.

vi. DFIs can help tackle the effects of a growing number of global challenges on developing
countries, for example, climate change, financial crises and international security

vii. DFIs can be an important for promoting economic growth mainly through providing medium
and long-term financing to the productive investment activities where the financing activities of the
conventional banking system are mostly limited.

viii. Furthermore, the DFIs can also promote the small and medium- sized industries which have
no or limited opportunities to access to the stock market and the commercial banks to meet their
financial needs.

ix. DFIs can tap these opportunities and expand their financial services to those potential
productive sectors of the economy.

Types Of DFIs
1. Perbadanan Usahawan Nasional Berhad
2. Perbadanan Nasional Berhad
3. Credit Guarantee Corporation Malaysia Berhad (CGC)
4. Lembaga Tabung Haji

3. Differentiate between Commercial Bank and Investment Bank

Commercial Bank Investment Bank

1. Focus on retail clients
- Loans are for retail
financing, e.g. car financing,
mortgage loan
- High customer base
2. Are more regulated
- To protect the public
- Retail clients have a lower
risk tolerance
3. Insured by PIDM
4. Can issue cheques
5. Earn profit from the difference
between deposit and leading rates
1. Focus on corporate client and
Government
- Loans are for corporate
financing, e.g business
expansion, loan
syndication
- low customer -based
2. Less regulated
- Higher risk tolerance
3.Not guaranteed by PIDM
4.Cannot issue cheques
5.Fees charges on services
 -Commercial banking is a subset of the financial services industry that provides financial
services to individuals and businesses, including individuals and small to medium-sized
businesses.
-In general, their work entails managing client bank accounts and providing financial services
such as loans and advice.
-Profit is generated by transaction fees, service charges, and interest on loans.

- An investment bank assists corporations and investors by concern for all financial
aspects of large projects.
- This could include mergers and acquisitions, stock advice, or the provision of
financial capital for projects.
- Investment banking is best understood in terms of two distinct functions: securities
trading and financial advice.
- Trading securities are liquid, fungible assets that can be used to raise capital on stock
exchanges.
- An investment bank underwrites these securities before purchasing them and
profitably selling them.

4. Discuss the role of Bank Negara Malaysia in the Malaysian Financial system.

- The principal objective of the bank is to promote monetary and financial stability that
is conducive to the sustainable growth of the Malaysian economy.

- BNM is guided by the principle that it should act only in the economic interest of the
nation and without regard to profit.

- The functions of BNM is to promote economic growth, a high level of employment,

maintaining price stability and a reasonable balance in the country’s international
payments position, eradicating poverty and restructuring society.

- BNM ensures that the availability and cost of money and credit in the economy are
consistent with national macroeconomic objectives. Therefore, BNM acts as the
banker for currency issue, keeper of international reserves and safeguarding the value
of the ringgit, banker and financial adviser to the Government, agency responsible for
monetary policy and management of the financial system and banker to the banks.