CHAPTER 3 MONEY AND FOREIGN EXCHANGE MARKET - Coggle Diagram
MONEY AND FOREIGN EXCHANGE MARKET
DEVELOPMENT AND STRUCTURE OF MONEY MARKET
Market for short-term mobilization of funds.
Trading financial instruments
Bankers acceptance (BA)
Bank Negara bills
Treasury bills (T-Bills)
Cagamas bonds and cagamas notes
Maturity: overnight to 1 year
OBJECTIVES, OPERATIONS, PARTICIPANTS AND CATEGORIES OF MM
OBJECTIVES OF MM
Ensure participants are able to trading MM instruments
Lend out (obtain funds) at competitive rates
Maximize profits and minimize costs of funds
Manage liquidity position and reserve requirement
PARTICIPANTS OF MM OPERATIONS
BNM – supervising and controlling authority
Banking institutions (commercial and investment banks)
Non-bank financial institutions
Unit trust funds
CATEGORIES OF MM OPERATIONS
DIRECT LENDING AND BORROWING
SALE AND PURCHASE OF MM INSTRUMENTS
DESCRIPTION OF MM INSTRUMENTS
NEGOTIABLE INSTRUMENTS OF DEPOSITS (NIDs)
Yield instrument – interest bearing
Deposit document issued by a bank to a customer
Certain amount has been deposited with the bank at specific rate and maturity date.
Can be sold before maturity
BANKERS’ ACCEPTANCE (BA)
Discounted instrument – non-interest bearing
Bill of exchange drawn on a bank
Created to finance a customer for trade transaction
Trade financing facility available to importers & exporters (buyers & sellers)
MALAYSIAN GOVERNMENT SECURITIES (MGS)
Yield instrument - Interest bearing
Issued by BNM to obtain funds from public specifically to finance national development projects.
Government agreed to pay periodic interest to the instrument’s holder, Return of the par value upon maturity
Issued in multiples of RM 1,000
Quoted in price terms per RM 100 nominal value.
MONEY MARKET RISKS AND MANAGING RISKS
MONEY MARKET RISKS
Credit risk- Borrower is unable to make payment on the maturity date agreed.
Liquidity risk: 2 situations- Banks do not have enough funds to meet commercial / trading requirements-Banks are unable to convert existing assets into cash at reasonable market price
Interest rate risk- Banks’ revenues are negatively affected with interest rate fluctuations.
Operational risk- Bad operational system in the MM