UNIVERSITI TEKNOLOGI MARA

COURSE:
FINANCIAL MARKET AND BANKING SERVICES
(FIN 435)

CASE STUDY:
ISSUES DISCUSSION

PREPARED BY:

MUHAMAD ANIS SYAZWAN BIN MOHMAD HARIS 2024783737

PREPARED FOR:
DR ZARITH SOFEA BINTI JASMI
1. Describe three characteristic common to money market securities.

Money market securities offer a higher return than holding cash.Cash can provides
liquidity and safety but it didn’t generates much interest meanwhile market securities
can give a modest return through short term interest rates that make them a better choice
for investors that wanted to earn a return or any sort of profit on their unused fund
without taking a guge risk.These instruments such as treasury bills or certificates of
deposits will give investors a short term income flow while maintaining their high
liquidity and minimal risk.
Money market securities are highly liquidity.Liquidity is a term that shows how
easy an assets can be turn into cash without suffering a large loss in their value.Money
markets assets has been proven to be very liquid due to their short period maturities
which is less than 120 days or less than a year.This shows that there will be little price
movements and they can be sold or redeemed for cash immedietly. This will increases
their liquidity by making them less vulnerable to fluncuations in interest rate and more
predictable.

Money market securities have a relatively low default risk.Most money market
instrument usually are issued by a trustworthy organisations including goverments ,
central banks or reliable businesss. Due to their short maturities and creditworthy issuer
, money market securties are considered as a low risk investments that offering a lower
returns compared to equities or bonds.These making money securities popular among
investors who are looking for more secure and stable short tem investments.
2. How MGS traded in secondary market ? what is the primary risk of trading in MGS ?

Malaysia Government securities (MGS) are primarily traded in the over the
counter (OTC) market where all their transactions are negotiated directly between
buyers and sellers.Most of this transactions are assisted by brokers or dealers.All
trades are recorded and settled through a system that operated by Bank Negara
Malaysia (BNM) shich is Fully Automated System For Issuing/ Tendering (FAST)
and Real Time Electronic Transfer of Funds and securities (RENTAS). For the Bond
And Sukuk Information Exchange (BIX) platforms , they offers transparency by
offering market data and information on bond trading to investors.
Commercial banks and institutional investors like pension funds, mutual funds
and insurance companies are major participants in the secondary market. Retail
investors can also be found investing through banks or brokers.The price of
Malaysia Government Securities (MGS) are depends on supply , demand and
interest rates. For instance , when interest rates rises , Malaysia Government
Securities (MGS) prices will tend to decline because their fixed coupon become less
profitable compared to newly issued bonds. Trades generally settled on a T-1 or T-
2 basis through Rentas.
The most significant risk that can be found in Malaysia Government Securities
(MGS) is interest risk. This means that if interest rise, the value of Malaysia
Government Securities (MGS) will drop. For example. If an investors purchases a
5 – year Malaysia Government Securities (MGS) with a fixed coupon rate and
interest rate and its subsequently increase , then the bond market value will
decrease. This will potentially resulting in a loss if the bond is sold before maturity.
Other risk like liquidity risk may be reduced demad for Malaysia Government
Securities (MGS) during market stress period.This will making it quite challenging
to sell without affecting the price.For markets risk , it can arise due to fluctuations
in economic conditions, geopolitical events or shifts in investors sentiment.All of
this can impact the trading value of Malaysia Government Securities (MGS).
3. Describe what is meant by a repo transaction and using a diagram / flow chart , explain
the trading process of repo.

Repurchase agreement (repo) is a short term borrowing arrangement that commonly

used by financial instituations to handle cash flow. In this transaction, the borrower
will sells securities like government bonds to the lender in exchange for a cash but
at the same time agrees to buy back the same securities later on a slightly higher
price.The difference between the selling and repurchasing prices is the interest
which is called as repo rate. Repo are secure because the lender holds the securities
as collateral which its reducing the risk of loss.

Initial sales

Cash

Lender Borrower

Security
u

Repossession

Cash + Interest

Lender Borrower

Security
u
Question 4

a. What was the spot exchange rate of Ringgit Malaysia for U.S dollar ?
According to the table given , the spot exchange rate of Ringgit Malaysia to U.S
dollars is 4.19750 which also means that 1 U.S dollar equal to 4.19750 Ringgit
Malaysia.
b. What was the six month forward exchange rate of British pound for U.S dollars ?
According to the table given , the six month forward exchange rate of British
pound for U.S dollars is 1.33283. This indicates that in six month , 1 U.S dollar
is expected to be equivalent to 1.33283 British pound.
c. What was the three month forward exchange rate of U.S dollars for Australian dollars.

Based on the table given, Three month forward rate of U.S dollars for Australian
dollar s is 0.68453. This indicates that in three month , 1 U.S dollar is expected
to be equivalent to 0.68453 Australian dollars.

d. Today, you convert MYR500,000 to U.S. dollars in the spot foreign exchange market
and purchase a six-month forward contract to convert U.S. dollars into Australian
dollars. How much U.S. dollars will you have today? Next, compute the amount you
will receive in Australian dollars at the end of six months? Show clear workings on how
you obtain the final answer

Spot rate for Ringgit Malaysia / U.S Dollar : 4.19750

Amount in MYR: 500,000
Formula : (Amount / Rate ) x 100%
USD = (500,000/4.19750) x 100%
USD = 119,118.52

Six-month forward rate for U.S dollar /Australian Dollar : 0.68411

Formula : (Amount / Rate ) x 100%
AUD = (119,118.52 x 0.68411) x 100 %
AUD = 81,490.17

Amount of U.S dollars that will have today: USD119,118.52

Amount will receive in Australian dollars at the end of six months: AUD
81,490.17
Question 5

a. Based on Table 2 in the assignment questions, determine each bond’s yearly coupon
rate, coupon payment, maturity date, type of issuer, and currency used for issuance.

Based on the information in Table 2, the yearly coupon rate for Malaysia
Government Securities (MGS) 1/2018 is 3.882%, which means the annual
coupon payment is MYR 388.20 (calculated as 3.882% of the MYR 10,000
principal). This bond will mature on 14 March 2025, and it is issued by the
Malaysian government in Malaysian Ringgit (MYR).
Yearly coupon payment : Nominal Principal x Yearly Coupon Rate
Yearly coupon payment : 10,000 x 3.882 /100 = MYR 388.20

For CIMB 4.310%, the yearly coupon rate is 4.310%, resulting in an annual
coupon payment of MYR 431.00 (4.310% of the MYR 10,000 principal). The
bond will mature on 25 September 2034, and it is issued by CIMB Bank, a
corporate issuer, also in Malaysian Ringgit (MYR).
Yearly coupon payment : Nominal Principal x Yearly Coupon Rate
Yearly coupon payment : 10,000 x 4.310 /100 = MYR 431.00
b. Briefly describe the meaning of the above rating given for each bond.

The Malaysia Government Securities bond is rated AA3 by Rating Agency

Malaysia (RAM) which indicating that it is a high-quality bond with very low
credit risk. This rating reflects the Malaysian Government’s strong capacity to
meet its financial obligations, placing the bond in one of the top rating
categories, just below AAA and AA1/AA2.

The CIMB bond is rated A1 by Rating Agency Malaysia RAM, which

indicates a strong credit worthness but have a slightly higher risk compared to
AA-rated bonds. While still considered low risk, the A1 rating suggests a
moderate vulnerability to economic changes or adverse conditions compared to
bonds rated AA3 or higher.

c. Which bond is more stable in fulfilling its debt obligations? Justify your selection.

Between the two bonds, the Malaysia Government Securities (MGS) 1/2018
is more stable in fulfilling its debt obligations. This is because it carries a higher
credit rating (AA3) compared to the CIMB bond (A1). Government bonds like
the Malaysia Government Securities (MGS) are generally considered as more
safer investments due to the backing of the government, which has the ability
to raise taxes or control monetary policies to ensure repayment. Meanwhile ,
corporate bonds such as CIMB that still reliable but inherently involve a slightly
higher risk due to the issuer’s dependence on market conditions and business
performance. Therefore, the Malaysia Government Securities (MGS) bond is
the better choice for investors who are prioritizing stability.
6. Explain the role of Bursa Malaysia. Describe three types of markets on Bursa Malaysia.

Bursa Malaysia is Malaysia’s main stock exchange, It provides a platform for

the buying and selling of securities, raising capital, and ensuring transparency in the
financial market. It provides companies with opportunities to raise funds through the
issuance of shares or bonds while allowing investors to buy, sell, and trade these
securities in a regulated environment. Bursa Malaysia also plays an important role in
maintaining market integrity by regulating participants, protecting investors, and
fostering economic growth through efficient capital allocation.
Bursa Malaysia operates three types of primary markets. The Main market is
caters to established companies with a strong financial track record and solid
governance standards. It is for a larger investors and features blue-chip stocks, such as
Petronas Chemicals and Maybank.
The ACE market is designed for a smaller or growing companies, including
those from innovative sectors, that do not meet the stringent requirements of the Main
Market. This market supports entrepreneurial businesses in raising funds and requires
sponsorship by an approved adviser for listing.
The LEAP market (Leading Entrepreneur Accelerator Platform) is more
focuses on small and medium enterprises (SMEs) that seeking a cost-effective way to
raise capital. It is accessible only to sophisticated investors, such as institutions and
high-net-worth individuals, as it carries a higher risk profile. The LEAP Market enables
SMEs to grow without the complexities associated with larger markets.

7. What are the financial products listed on Bursa Malaysia ?

Bursa Malaysia offers a wide range of financial products to meet the needs of different
investors such as equities (shares) , exchange traded funds (ETFs) , Real estate
investment trust (REITs), bonds , derivatives , structured warrants and close end funds
(CEFs).
8. Explain the difference between Bank Islam Malaysia Berhad (BIMB) Labun Offshore
Branch vs Bank Islam Malaysia Berhad located in Malaysia ?

Bank Islam Malaysia Berhad (BIMB) Labuan Offshore Branch and its domestic
branches in Malaysia operate under different regulatory frameworks and serve distinct
markets. The Labuan Offshore Branch is regulated by the Labuan Financial Services
Authority (Labuan FSA) and focuses on international clients, such as foreign investors
and multinational corporations. It specializes in services like Islamic wholesale
banking, cross-border financing, and wealth management, often dealing in foreign
currencies to support global transactions. Additionally, it benefits from Labuan’s
favorable tax regime, which offers lower corporate taxes and exemptions for certain
financial activities.
On the other hand, the domestic branches of Bank Islam are regulated by Bank
Negara Malaysia (BNM) and cater to local customers, including individuals and
businesses. These branches focus on everyday banking needs, such as savings accounts,
personal and business financing, and takaful (Islamic insurance), primarily dealing in
Malaysian Ringgit (MYR). Unlike the Labuan branch, domestic branches follow
Malaysia’s standard tax and regulatory requirements.
References

1. Bank Islam Malaysia Berhad. (2024). Corporate Overview. Available at:

www.bankislam.com
2. Labuan Financial Services Authority (LFSA). (2024). Labuan IBFC Overview.
Available at: www.labuanibfc.com
3. Bank Negara Malaysia. (2024). Islamic Banking Regulations. Available at:
www.bnm.gov.my
4. Bursa Malaysia. (2024). Product Highlights. Available at: www.bursamalaysia.com
5. Mishkin, F. S. (2021). The Economics of Money, Banking, and Financial Markets.
Pearson.
6. Securities Commission Malaysia. (2024). Capital Market Development in Malaysia.