An

Overview
of The
Financial
System
Concept of
Financial
Market
 Functions
of Financial
Market
Classification of Financial Market
A. Money Market
Instruments ofInstruments
Money Market
of Money Market
Bankers Acceptance also known as a banker's acceptance, that represents a
promise by a bank to pay a specified amount of money on a
specific date in the future. It is a type of short-term credit
instrument that is commonly used in international trade
transactions.
A bank acceptance is typically created when a buyer agrees to
pay a seller at a future date, and the seller requests the buyer
to provide a bank guarantee. The buyer then applies to their
bank to issue a bank acceptance, which is a written order by
the bank to pay the seller on a specified date.
Negotiable Instruments of Deposit A negotiable instrument of deposit is a financial instrument
that can be transferred from one person to another and is used
to represent a deposit of funds. It is a type of negotiable
instrument that allows for the transfer of ownership of funds
without the need for physical transfer of cash.

Examples of negotiable instruments of deposit include checks,

money orders, and bank drafts. When a person or business
deposits funds into a bank account, they can use one of these
negotiable instruments to represent the deposit.
 Instruments of Money Market
Treasury Bills Treasury Bills (T-Bills) are short-term debt instruments issued by
governments to finance their short-term cash needs. In the case of the
United States, Treasury Bills are issued by the U.S. Department of the
Treasury and are backed by the full faith and credit of the U.S. government.
Malaysian Treasury bills (MTB) are short-term securities issued by BNM on
behalf of the
Government of Malaysia. Treasury bills are used for the effective
management of the short-term funding needs of the government.
MTB are issued at discount via competitive auction and carry original
tenures of 3 months, 6
months, and 1 year. Redemption of MTB is at par. The standard
transaction lot size for MTB
is MYR5 million

Bank Negara Bills
Bank Negara Bills are short-term debt securities issued by the Central Bank
of Malaysia, also known as Bank Negara Malaysia (BNM). These bills are
used by BNM to manage the country's money supply and liquidity in the
financial system.
Bank Negara Bills have a maturity period of less than one year, typically
ranging from 1 week to 12 months. They are sold at a discount to their
face value, and the difference between the purchase price and the face
value represents the interest earned by the holder. Bank Negara Bills are
considered to be a safe investment because they are issued by the central
bank, which has the authority to regulate and stabilize the country's
financial system.
Investors who hold Bank Negara Bills can sell them in the secondary
market before maturity if they need to liquidate their investment. The
market for Bank Negara Bills is generally limited to financial institutions
and other institutional investors.
Overall, Bank Negara Bills serve as an important tool for BNM to manage
monetary policy and promote financial stability in Malaysia.
 Instruments of Money Market
Money Market Deposits
Money Market Deposits refer to a type of deposit account offered by
financial institutions, which typically offer higher interest rates than
traditional savings accounts. Money market deposits are eligible for
protection by the Perbadanan Insurans Deposit Malaysia (PIDM), a
government agency established to protect depositors in the event of a
member institution's failure.
The PIDM provides protection for eligible deposits up to RM250,000 per
depositor per member institution. Eligible deposits include savings
accounts, current accounts, fixed deposit accounts, and money market
deposit accounts.
To be eligible for PIDM protection, a financial institution must be a
member of the PIDM. The majority of banks and financial institutions in
Malaysia are members of the PIDM, but it is always a good idea to check
if your institution is a member before opening an account.
It is important to note that not all money market deposit accounts are
eligible for PIDM protection. To ensure that your deposit is eligible, check
with your financial institution or refer to the PIDM website for a list of
eligible member institutions and account types.
B. Capital
Market
 Basic of Difference Money Market Capital Market

Time Span of securities Money market instruments Deals in long-term and

Differences
have medium-term securities
a maturity period of a having
maximum a maturity period of more than

between
one year. a
year.
Liquidity Securities in the money market Securities in the capital market

Money are highly liquid as DFHI

provides a ready market for
them.
are liquid only to a certain
extent that they are tradable
on

Market and stock exchanges. However,

they
are comparatively less liquid

Capital than money market securities.

Market Returns Expected As the securities have a

shorter
They offer higher possibility of
gain as the securities are for a
maturity period, the expected longer period.
return is lower.

Instruments Short-term debt instruments Instruments traded are equity

such as commercial papers, shares, preference shares,
treasury bills and certificates bonds and debentures.
of
deposit are traded.

Risk Securities traded are safe as Securities traded are risky with
securities are traded for short regard to both return and
duration and the issuers are principal repayment.
financially sound.
Types of
Capital
Market
Primary Market
• The primary market in Malaysia's financial market refers to the market where new securities, such as stocks, bonds,
and other financial instruments, are issued and sold for the first time by companies, governments, or other entities to
raise capital.

• In the primary market, these securities are offered to the public for the first time through initial public offerings (IPOs)
or other types of public offerings. Investors who participate in the primary market have the opportunity to purchase
these securities directly from the issuers, often at a lower price than they would pay in the secondary market.

• In Malaysia, the primary market is regulated by the Securities Commission, which oversees the registration and
issuance of securities, and ensures that companies comply with the relevant disclosure and reporting requirements.
The primary market in Malaysia is an important source of funding for companies looking to raise capital for expansion,
investment, or other purposes.

• Investors in the primary market in Malaysia should carefully evaluate the risks and potential returns of the securities
being offered, and consult with their financial advisor before investing. It is also important to carefully review the
prospectus or other disclosure documents provided by the issuer before making an investment decision.
 • In Malaysia, the secondary market refers to the buying and
selling of previously issued securities, such as stocks,
bonds, and other financial instruments, on an exchange or
over-the-counter (OTC) market.

• The main exchange in Malaysia is the Bursa Malaysia, which

provides a platform for investors to trade securities listed
Secondary on the exchange, including stocks, derivatives, and
exchange-traded funds (ETFs). The OTC market in Malaysia

Market operates through brokerage firms, where buyers and sellers

negotiate directly with each other.

• The secondary market is important for investors as it

provides liquidity for securities, allowing investors to easily
buy and sell their investments, as well as providing price
transparency through real-time pricing information.
Additionally, the secondary market provides an avenue for
investors to diversify their portfolios and manage risk.
 Capital market instruments refer to financial instruments used by
companies and governments to raise funds for their long-term
investment needs. Some common capital market instruments include:

A stock is a financial instrument that represents ownership in a

Stocks or shares
Capital
company. When a company issues stock, it is essentially dividing
ownership of the company into small pieces, which are then sold
to investors. These investors, also known as shareholders, become

Market
part-owners of the company and are entitled to a share of the
company's profits.
Stocks are traded on stock exchanges, which are marketplaces

Instruments
where buyers and sellers come together to trade stocks. The stock
market is a key part of the capital market, which is the market
where companies raise capital by selling securities like stocks and
bonds.

In finance, a bond is a debt security that represents a loan made

Bonds by an investor to a borrower, typically a corporation or government
entity. Bonds are a commonly used instrument in capital markets
because they offer a relatively low-risk investment opportunity for
investors while providing a source of funding for corporations and
governments. Bond investors receive regular interest payments at
a fixed rate, and the principal is typically repaid at the end of the
bond's term. This makes bonds an attractive investment for
individuals and institutions seeking a stable source of income.
Capital Market
Instruments
Instruments
Exchange-traded funds (ETFs)
Real estate investment trusts (REITs)
Derivatives such as futures and options
Exchange-traded funds (ETFs) are a type of investment fund that trades on stock exchanges,
similar to stocks. ETFs are designed to track the performance of a particular index, such as the
S&P 500, or a specific asset class, such as bonds or commodities. ETFs are considered a capital
market's instrument because they are traded on a secondary market, where investors can buy and
sell them like stocks.
When an investor buys an ETF, they are purchasing a basket of underlying assets, such as stocks
or bonds, that represent the index or asset class the ETF is designed to track. The value of the
ETF is based on the combined value of these underlying assets. ETFs can provide investors with a
diversified investment portfolio without having to purchase individual stocks or bonds.
Real estate investment trusts (REITs) are a type of investment vehicle that allows individuals to
invest in real estate without actually purchasing and managing properties themselves. Instead,
REITs own and manage income-producing real estate properties, such as apartment buildings,
commercial office buildings, and shopping centers.
REITs are traded on public stock exchanges, just like stocks, and are considered a capital
market's instrument because they allow investors to buy and sell ownership shares in a publicly
traded company. Investors can purchase shares in a REIT just as they would with any other
publicly traded company. The share price of a REIT is determined by the market forces of supply
and demand, based on investor perception of the company's future prospects and the underlying
value of the properties it owns.
Derivatives are financial instruments that derive their value from an underlying asset, such as a
stock, commodity, or currency. Futures and options are two common types of derivatives used in
capital markets.
Futures are contracts between two parties to buy or sell an asset at a predetermined price on a
specified date in the future. The buyer of a futures contract is obligated to purchase the
underlying asset at the agreed-upon price, while the seller is obligated to sell it. Futures contracts
can be used to hedge against price fluctuations, speculate on price movements, or gain exposure
to an asset without owning it outright.
 • Islamic financial market refers to a system of financial
services that operates in accordance with Islamic principles
and laws, known as Shariah. The underlying principle in
Islamic finance is the prohibition of interest (known as riba)
and speculation (known as gharar), and instead, the focus is
on profit and loss sharing (known as mudarabah) and asset-

Islamic backed transactions.

Financial • Islamic financial products and services include savings and

investment accounts, leasing and rental agreements,
insurance, and financing instruments such as sukuk (Islamic

Market bonds). In Islamic finance, transactions must comply with

Shariah laws and ethical standards, and the industry is
overseen by Shariah supervisory boards to ensure
compliance.

• Overall, Islamic finance aims to promote social justice and

responsibility, by encouraging ethical investment practices
and supporting economic development in a way that aligns
with Islamic principles.
Islamic Financial Market in Malaysia
• Malaysia has been a pioneer in developing and promoting Islamic finance, with a well-established Islamic financial
market.

• The Islamic financial market in Malaysia includes a range of institutions, products, and services that cater to the needs
of Muslims who seek to comply with Islamic laws in their financial transactions. The market comprises Islamic banks,
Islamic investment banks, takaful (Islamic insurance) companies, Islamic fund management companies, and other
financial institutions that offer Islamic financial products and services.

• Islamic financial products in Malaysia are structured in compliance with shariah law, which prohibits interest-based
transactions and encourages risk-sharing. Some examples of Islamic financial products in Malaysia include Islamic
current and savings accounts, Islamic home financing, Islamic car financing, and Islamic credit cards.

• The regulatory framework for Islamic finance in Malaysia is overseen by the central bank, Bank Negara Malaysia, and
the shariah advisory council, which ensures that Islamic financial products and services comply with shariah law.

• Overall, the Islamic financial market in Malaysia has grown significantly over the years and is now considered one of
the leading Islamic finance centers in the world, with a wide range of innovative products and services that cater to the
needs of both Muslims and non-Muslims.
 • Islamic finance refers to a financial system that operates in accordance
with Islamic principles, which prohibit the charging or paying of interest
(riba), speculative or unethical investments, and other practices deemed
contrary to Islamic law (Shariah).
• Instruments used in Islamic financial markets typically include:
• Murabaha: A financing arrangement where the financier buys an asset
and then sells it to the client at a marked-up price. The client makes
installment payments to the financier, effectively paying for the asset over
time.
• Musharaka: A partnership or joint venture agreement where the parties
share profits and losses. Each partner contributes capital, and the profits

Instruments of
are shared according to the agreed-upon ratio.
• Mudaraba: A form of investment where the financier provides the capital,
and the entrepreneur provides the expertise and management. The profits
Islamic are shared according to the agreed-upon ratio, with the financier taking a
portion of the profits as compensation for providing the capital.

Financial • Sukuk: An Islamic bond that represents a share in an asset or project.

Investors receive a portion of the profits generated by the asset or project,
rather than a fixed rate of return.

Market • Ijarah: A leasing arrangement where the financier purchases an asset and
leases it to the client for a set period. The client pays rent to the financier
and may have the option to purchase the asset at the end of the lease
term.
• Takaful: An Islamic insurance arrangement where members contribute to a
pool of funds that is used to pay claims. The contributions are invested in
Shariah-compliant investments, and any profits are distributed to the
members.

• Overall, Islamic financial instruments prioritize risk-sharing and ethical

investment practices over traditional interest-based financing.
 Islamic finance is based on the principles of shariah or Islamic law, which
prohibits charging or paying interest and promotes risk-sharing and ethical
investment. There are several types of Islamic financial markets, some of which
are:
Sukuk Market: The Sukuk market is a market for Shariah-compliant bonds,
which are structured to comply with Islamic finance principles. Sukuk
represents ownership of an underlying asset or a share in a project or business,

Types of rather than a loan with interest.

Equity Market: The equity market is a market for shares in companies that
comply with Islamic finance principles. These shares are bought and sold on an

Islamic
exchange, and the returns are based on the company's performance rather than
interest.
Money Market: The money market is a market for short-term financing, such as
trading of Islamic financial instruments such as Murabaha, Ijarah, and Tawarruq,

Financial
which are based on asset-backed financing.

Commodity Market: The commodity market is a market for trading in

commodities such as gold, silver, and oil in a Shariah-compliant manner.

Market Real Estate Market: The real estate market is a market for the buying and
selling of properties that comply with Islamic finance principles. For example,
Shariah-compliant mortgages called Murabaha and Ijara are used for financing
real estate purchases.
These financial markets provide alternatives to conventional interest-based
financial systems and promote ethical investment and risk-sharing.