BBPW3103 FINANCIAL MANAGEMENT I /MAY 2021

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BBPW3103 FINANCIAL MANAGEMENT I /MAY 2021

1 ASSIGNMENT 1

1.1 Description and explanation of the functions and roles of money market and capital
market.

1.1.1 Financial Market

Business firms, individuals, and government bodies have to obtain funds. A financial
market is an intermediary that connects the capital depositors with borrowers within the
economy (Yunidah et al., 2013).

The financial market generally refers to any market for securities transactions, including
but not limited to the stock market, bond market, foreign exchange market and derivatives
market. The financial market is essential to the normal operation of the capitalist economy.

The financial market plays a vital role in ensuring the normal operation of the capitalist
economy by allocating resources and creating liquidity for enterprises and entrepreneurs.
The market makes it easier for buyers and sellers to trade their financial assets. In the
financial market, they create securities, provide income for those who have excess funds
(investors/lenders), and provide these funds to those who need additional funds (borrowers)
(Hayes, 2021).

Described and explained below are a two main financial markets:

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1.1.2 Money Market

The money market plays an important role in economic development; it is part of the
financial system, and the short-term operation of this part of the fund is less than a year.
The money market is a good place for individuals, banks, other businesses, and
governments to store cash for a short period of time, usually a year or less. It exists to make
it available to companies and governments that need cash to obtain cash quickly at a
reasonable cost, as well as companies that have more than needed funds.

The return is moderate, but the risk is low. Tools used in the money market include
deposits, pledges, acceptance bills and bills of exchange (Majaski, 2021). Organizations
operating in the money market include the Federal Reserve, commercial banks, and
licensing committees.

When a company or government provides a short-term loan, it is usually used to pay

operating costs or provide working capital, rather than for major renovation or large-scale
projects.

The functions and roles of the money market are described as follows:

1.1.2.1 Useful Use of Balanced Capital

Promote financial and non-financial institutions and governments to effectively use
balanced capital funds in a short period of time.

1.1.2.2 Supporting monetary progress

In order to meet the working capital needs of various financial institutions, the money
market provides short-term funds for them. It discounts trade bills through commercial
banks, issuing offices, brokers, etc., to promote the development of trade, industry and
commerce.

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1.1.2.3 Helping banks

Since the money market interest rate is lower than the Central Bank, commercial banks
can borrow in the existing money market instead of borrowing from the Central Bank,
thereby saving bank costs.

1.1.2.4 Aid to the Government

Through the issuance of Treasury bills, the state can raise short-term funds in the currency
market at the lowest interest rate instead of financing through BNM.

1.1.2.5 The balance of capital supply and demand

By converting savings into investment, the money market provides funds for its balanced
use, thereby maintaining the balance of supply and demand of capital.

1.1.2.6 Adequate monetary policy

Through its monetary policy, the Central Bank can effectively regulate its banking system
and control the development of trade and industry. Therefore, the Central Bank
effectively manages the good implementation of monetary policy.

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1.1.3 Capital Market

The capital market is a long-term financial lending market with a maturity of more than
one year; it is an organized financial market in which savings and investment are shared
by those with sufficient funds and those in need. The capital market is mainly a link
between depositors and investors.

The main types of instruments traded on the capital market are liabilities, stocks,
government bonds and bonds. The capital market is a long-term investment with high risks.
The capital market is divided into a primary market and a secondary market. The primary
market, also known as new shares, is a market where new securities negotiated for the first
time are brokered through the issuance of subscription rights, prospectuses, and IPOs.

It is noted that the secondary market is a market for trading old securities and existing
securities. The secondary market is called a stock market or exchange. Securities
previously traded in the primary market are traded in the secondary market. Investors bring
and sell securities in the secondary market. The capital market has many important
functions in improving the economy, which will be discussed below.

1.1.3.1 Savings and Investor Relations

The capital market acts as an intermediary between those who have surplus funds and
those who need them. Direct ideal resources to more productive resources, where you can
create income and increase productivity. Save and guide them to make productive
investments. These investments provide investors with fixed income and growth.

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1.1.3.2 Capital formation

The capital market plays an effective role in the accumulation of capital in the economy.
It meets and serves the financial needs of various sectors of the economy and provides
sufficient funds for them in a timely manner. Production and development sources.

It mobilizes people's savings through investment and lends the money to major economic
development projects. Therefore, it satisfies the general demand for funds and helps
increase the existing investment capital in the economy.

1.1.3.3 Securities price supervision

Capital market helps to supervise stable and systematic securities prices. The capital
market constantly monitors securities transactions. Monitor all processes and avoid
unproductive and speculative activities. Funds are provided in standard and minimum
amounts. The borrower's interest rate. This helps stabilize the prices of securities in the
economy.

1.1.3.4 Provide investment opportunities

The capital market provides a variety of long-term investment opportunities for investors
seeking long-term investment. He participates in long-term securities transactions and
therefore collects and borrows funds for a long time. Provide people with good interest
rate options. Invest your excess funds. People are encouraged to invest their money and
earn a stable income in the form of interest.

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1.1.3.5 Economic growth and development

It contributes to the country’s economic growth and development. The capital market
accelerates the economic growth of a country by continuously providing funds between
different economic sectors. Funds the development of the country's large and expensive
infrastructure. The capital market covers the long-term financial needs of various
commercial properties. Therefore, it improves economic productivity by improving
infrastructure and creating jobs. Minimize transaction costs and time. The capital market
makes it easier to negotiate long-term securities. This reduces the total cost and time
required for the entire negotiation process. The entire transaction process is carried out
electronically using automated systems and procedures that optimize the entire process.

1.1.3.6 Continuous supply of funds

The capital market ensures an adequate supply of funds in the economy and continues to
provide investors with long-term investment opportunities. It is a liquid market, where
both buyers and sellers of securities are available at any time, and funds are constantly
flowing between different sectors of society, ensuring sufficient availability of funds.

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1.2 Discussion on how the roles of money market and capital market can affect the
financial market in Malaysia.

A well-functioning economic marketplace serves a critical position inside the improvement

of the actual economy. This is even greater so for notably open economies like Malaysia,
wherein the alternate fee is a critical detail in alternate and investment (Nordin & Nordin,
2016).

The financial market helps to effectively guide the flow of savings and investment into the
economy to promote capital accumulation and the production of goods and services. A
combination of developed financial institutions and markets as well as a wide range of
financial products and instruments. It adapts to the needs of borrowers and lenders, thereby
adapting to the overall economy.

In addition, efficient financial markets and institutions tend to reduce search and transaction
costs in the economy. By providing a wide range of financial products with different risk
and price structures as well as maturities, a well-developed financial system offers its
participants products that borrowers supply to private individuals, companies and
governments who need funds can easily find out which financial products institutions or
which financial markets are financing can offer and what the costs are for the borrower. This
allows investors to compare the cost of financing to their expected return on investment,
helping them choose the investment option that best suits their needs. In this way, financial
markets direct lending throughout the economy and facilitate the production of goods and
services.

The Bank has constantly undertaken economic markets tasks as a part of its method and
mandate to expand and deepen the Malaysian economic markets (Singh & Yusof, 2010).
The Bank’s method is multi-dimensional and consists of tasks that intention to reset the path
of the onshore marketplace, fortify the pillars of the onshore economic markets, and beautify
marketplace resiliency (Financial Markets Development Initiatives - Bank Negara Malaysia,
2021).

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Capital markets help channelize surplus finances from savers to institutions, which then
make investments into efficient use. Generally, this marketplace trades usually in long-time
period securities. The capital marketplace includes primary markets and secondary markets.

The money market contributes to the boom of industries in ways: They help industries stable
short-time period loans to satisfy their working capital necessities via the device of finance
bills, industrial papers, etc. Industries usually want long-time period loans, which can be
furnished inside the capital marketplace.

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1.3 Summary

Since the established order of Bank Negara Malaysia in 1958 because the nation’s economic
authority, the Malaysian economic gadget has advanced into one of the greater evolved and
liberal structures within side the place, capable of carrier the desires of the increasing and
converting shape of the Malaysian economic system (Nordin & Nordin, 2016).

The deregulation of the financial system, which turned into stalled via way of means of the
recession of the overdue 1980s, resumed and intensified, with the pursuits of expanded
competition, expanded intensity within side the cash marketplace, and similarly
improvement of the capital marketplace, specially the secondary marketplace for MGS.

To a big extent, this development meditated the behavior of macroeconomic policies and
strategies geared towards the industrialization and modernization of the economic system
and the powerful implementation of a marketplace-orientated and outward-searching
monetary gadget. More critical turned into that those guidelines have been applied in a
realistic and bendy manner, with a willingness via way of means of the authorities to
alternate guidelines quickly, and that those guidelines have become marketplace primarily
based totally.

Simultaneous with the institutional reform, structural reform of the economic gadget
proceeded with vigor. The maximum critical step turned into the entire deregulation of the
hobby price regime in February 1991, whilst the bottom lending price of the banking
establishments turned into absolutely free of the executive manipulate of the relevant bank.
This reform degree created a brand new interest rates system, wherein interest rates have
been decided via way of means of the dictates of marketplace forces. This critical step way
that Malaysia is now one of the few economic markets within side the place with an interest
rate system free of government control.

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2 ASSIGNMENT 2

2.1 Introduction of the selected commercial banks

2.1.1 Malayan Banking Berhad

Maybank was founded in 1960 and is now the largest company by market capitalization on
the Malaysian Stock Exchange (Bursa Malaysia). Maybank Group offers a wide range of
products and services including commercial banking, investment banking, Islamic
banking, offshore banking, installment leasing and purchase, insurance, factoring,
fiduciary services, asset management, stock brokerage, nominative services, venture
capital and online banking (Overview | Maybank, 2021).

2.1.2 Affin Bank Berhad

The AFFINBANK Group is a financial services group. The AFFINBANK Group's

activities focus on commercial, Islamic and investment banking services, money
brokerage, asset management and the underwriting of property and life insurance. The
prominent shareholder of the AFFINBANK Group is Lembaga Tabung Angkatan Tentera,
the nation's leading pension fund manager for the armed forces (Affin Bank Berhad -
Investor Relations: IR Home, 2021).

2.1.3 ICBC Malaysia

Industrial and Commercial Bank of China Malaysia (hereinafter "ICBC Malaysia" or "the
Bank"), a wholly owned subsidiary of Industrial and Commercial Bank of China Limited,
located at Level 10, Menara Maxis, Kuala Lumpur City Center, 50088 Kuala Lumpur，
was founded on January 28, 2010 and officially started operations on April 28, 2010. As
a financial institution with a full banking license, the bank actively provides financial
services in connection with deepening the relationship between China and Malaysia.
Aspects for its customers, be they commercial, cross-border companies / investors,
financial institutions and retailers (ICBC Malaysia Profile, 2010).

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2.2 Calculation of future value of annuity (Malayan Bank Berhad)

𝑖 = 0.25% @ 0.0025

𝐴 = 80,000 ( 𝑚𝑎𝑑𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑜𝑓 𝑒𝑣𝑒𝑟𝑦 𝑦𝑒𝑎𝑟)

𝑛 = 10

(1 + 𝑖 )𝑛 − 1
𝐹𝑉𝐴𝑛 = 𝐴 ( ) (1 + 𝑖 )
𝑖

(1 + 0.0025)10 − 1
𝐹𝑉𝐴𝑛 = 80,000 ( ) (1 + 0.0025)
0.0025

𝑭𝑽𝑨𝒏 = 𝑹𝑴𝟖𝟏𝟏, 𝟎𝟖𝟐. 𝟗𝟏

2.3 Calculation of future value of annuity (Affin Bank Berhad)

𝑖 = 0.4% @ 0.004

𝐴 = 80,000 ( 𝑚𝑎𝑑𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑜𝑓 𝑒𝑣𝑒𝑟𝑦 𝑦𝑒𝑎𝑟)

𝑛 = 10

(1 + 𝑖 )𝑛 − 1
𝐹𝑉𝐴𝑛 = 𝐴 ( ) (1 + 𝑖 )
𝑖

(1 + 0.004)10 − 1
𝐹𝑉𝐴𝑛 = 80,000 ( ) (1 + 0.004)
0.004

𝑭𝑽𝑨𝒏 = 𝑹𝑴𝟖𝟏𝟕, 𝟖𝟏𝟐. 𝟗𝟎

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2.4 Calculation of future value of annuity (ICBC Malaysia)

𝑖 = 0.8% @ 0.008

𝐴 = 80,000 ( 𝑚𝑎𝑑𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑜𝑓 𝑒𝑣𝑒𝑟𝑦 𝑦𝑒𝑎𝑟)

𝑛 = 10

(1 + 𝑖 )𝑛 − 1
𝐹𝑉𝐴𝑛 = 𝐴 ( ) (1 + 𝑖 )
𝑖

(1 + 0.008)10 − 1
𝐹𝑉𝐴𝑛 = 80,000 ( ) (1 + 0.008)
0.008

𝑭𝑽𝑨𝒏 = 𝑹𝑴𝟖𝟑𝟔, 𝟎𝟓𝟖. 𝟒𝟕

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2.5 Comparison of the total savings between the three commercial banks.

Based on the savings account current interest rates offered by the banks, the future value of
an annuity of RM80,000 made at the beginning of every year for 10 years for each banks are
as below:

Bank Interest Rates Future Value Annuity

Malayan Bank Berhad 0.25% RM811,082.91

Affin Bank Berhad 0.4% RM817,812.90

ICBC Malaysia 0.8% RM836,058.47

Hence, ICBC Malaysia provides highest interest rate and should be preferred. Higher
interest rates may lead to higher rates of return. As for this case, ICBC Malaysia provides
0.8% p.a. of interest rates lead to future value of RM836,058.47 in 10 years which is higher
than the other two banks.

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2.6 Summary

An annuity is a series of payments or receiving of the same amount at the same intervals
throughout the period of valuation. The annuity has a clearly stated starting point and an
ending, in other words, annuity cash flow would not be indefinite. Normally, an annuity
occurs at the end of each period and this annuity is known as an ordinary annuity. However,
in this case, annuity occurs at the beginning of the period and this type of annuity is called
annuity due.

Sometimes, we face a situation where the payment of annuity is at the beginning of a period,
for example, the beginning of each month or year. This type of annuity is known as annuity
due where it is different from ordinary annuity as ordinary annuity is paid at the end of a
period. Annuity due occurs more frequently in future value annuity (FVA) than present value
annuity (PVA).

As for that, in this cases ICBC Malaysia which provide 008% p.a. of interest rate should be
preferred among the other two banks since it provides the highest interest rates and
eventually will lead to higher future value in 10 years.

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3 NUMBER OF WORDS = 2,486 WORDS (excluding references)

4 APPENDIX
REFERENCES

Affin Bank Berhad - Investor Relations: IR Home. (2021). https://affin.listedcompany.com/

Financial Markets Development Initiatives - Bank Negara Malaysia. (2021).

https://www.bnm.gov.my/financial-markets-development-initiatives

Hayes, A. (2021, February 23). Financial Markets Definition.

https://www.investopedia.com/terms/f/financial-market.asp

ICBC Malaysia Profile. (2010). https://malaysia.icbc.com.cn/ICBC/海外分行/马来西亚网站

/en/AboutUs1/ICBCMalaysiaProfile/

Majaski, C. (2021, January 8). Money Market Vs. Capital Market: What’s the Difference?
https://www.investopedia.com/articles/investing/052313/financial-markets-capital-vs-
money-markets.asp

Nordin, S., & Nordin, N. (2016). The Impact of Capital Market on the Growth of the. Research
Journal of Finance and Accounting, 6(S7), 259–265.
http://www.econjournals.com/index.php/ijefi/article/view/3617/pdf

Overview | Maybank. (2021). https://www.maybank.com/en/about-us/who-we-

are/overview.page?

Singh, R. A., & Yusof, Z. A. (2010). Development of the Capital Market in Malaysia. Securities
Commission and Institute of Strategic and International Studies, 1–34.

Yunidah, I. A. P. D., Ibrahim, F. Z., Manab, N. A., Ismail, R., & Zainuddin, Z. (2013). Financial
Management I ( FIN3400 ) (Third, Vol. 2013).

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