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Course Outline
FIN536: Financial Market and Institution

Chapter 1: Overview on the structure of financial system.
1.1 Role of financial markets and financial institutions and the financial intermediation functions.
1.1.1 Financial stability and functions of financial systems; total assets and sources and
uses of funds of Malaysian financial system.
1.1.2 Overview of the four financial markets objectives, characteristics and development.
1.1.3 Concept of financial intermediation
1.1.4 Functions and development of commercial banks, investment/ merchant banks; their
role as financial intermediaries
1.1.5 Development and objectives of Islamic banks
1.1.6 Functions of Non-Bank Financial Institutions development finance institutions
(DFIs), provident and pension funds, insurance companies, savings institutions and
others.
1.2 Interest rates structure and determinants, development of BLR and its computation
1.2.1 Definition, difference between nominal and real interest.
1.2.2 Determinatnts of interest rates Loanable Funds Theory; factors affecting interest
rates
1.2.3 Development of BLR framework (computation), overnight policy rate (OPR)

Chapter 2: BNM and the financial system
2.1 The role of BNM, monetary instruments and its impact
2.1.1 Overview on the balance sheet of BNM
2.1.2 Objectives of BNM (issue currency and manage reserves minimum reserves, financial
adviser and banker, monetary stability and credit control)
2.1.3 Monetary instruments SRR, SLR, Disc. Operations, Open Market Operations, direct
borrowing and lending

Chapter 3: Money and Foreign Exchange Market
3.1 Development and structure of Money Market (MM)
3.2 MM operations, risks and instruments
3.2.1 Instruments features and computations of proceeds and yield REPO, NCDs, Bas, MGS,
TBs
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3.2.2 Participants of MM
3.3 Characteristics, developments and participants of Foreign Exchange (Forex) market
3.4 Forex transactions and risks, factors affecting forex, role of BNM and financial institutions in forex
transactions
3.5 Trading strategies and forwards market
3.5.1 Speculative or commercial requirement; short term or structural trading; forward
calculation discount or premium.

Chapter 4: Capital Market Equity and Bond Market
4.1 Stock market environment development and performance, exchanges, regulatory bodies and
indices
4.2 Types of markets, role of institutions, characteristics and risks of investing
4.2.1 Primary and secondary market; Bursa Malaysia, SC, brokerage firms, features of
common stock
4.3 Government bonds and PDS features, development and regulatory requirements in bond
market; MGS, MTBs, BNB, Cagamas instruments; ratings (RAM and MARC) and bond valuation.

Chapter 5: Derivaties Market
5.1 Development and types of instruments (futures and options)
5.1.1 Regulatory framework; features of futures and options

Chapter 6: Offshore Market
6.1 Objectives and characteristics
6.1.1 Definition, benefits; LOFSA role, features
6.2 Regulations and activities
6.2.1 LOFSA Legislations and activities

Chapter 7: Financial Legal Framework
7.1 Legislation on lending guidelines, supervision and capital adequacy of banking institutions and
other non-depository institutions
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7.1.1 BAFIA 1989 objective, scope, licensing, receiving deposits, financial requiremetns,
granting of loans, restriction of credit, powers of supervision, loans classification
7.1.2 Others (briefly) Central Bank of Malaysia Act 1958, Islamic Banking Act 1983,
Exchange Control Act 1953, Insurance Act 1996, Takaful Act 1984

Chapter 8: Financial Institutions
8.1 Sources and Uses of funds and structure of financial statements of banking institutions
8.1.1 Components of the balance sheet and income statements of commercial banks,
investment/ merchant banks and Islamic banks
8.2 Risks of financial institutions
8.2.1 Credit risk, liquidity risks, interest rate risks, operations risks
8.3 Products offered (Commercial Banks)
8.3.1 Deposits Savings, current, FD/ Investment
8.3.2 Loans and advances types of loans (secured/ unsecured), OD, Term Loan; Trade
finance facilities LC, ECR, Shipping Guarantee, Trust Receipts, BA, Bank Guarantee
8.3.3 Card services Credit, charge cards
8.3.4 Electronic Banking Internet Banking, ATMs features, advantages, disadvantages

Chapter 9: Banking Regulation and Management
9.1 Capital Adequacy Framework importance of adequate capital, Risk-weighted capital ratio
approach (5 risk-weighted categories)
9.2 Liquidity management Primary and secondary reserves, sources of liquidity; importance of
holding liquid assets; asset and liability management; functions of ALCO
9.3 Asset quality loan portfolio and problem loan management
9.3.1 Banks credit process/ loan life cycle, loan securities (collateral), problem loan detection
(red-flags), loan recovery techniques
9.4 Performance evaluation of banks analyzing financial statements
9.4.1 Ratios: Profitability ROA, ROE, Spread; Liquidity Loans to TA; Capital adequacy
RWCR, Core capital ratio; Asset quality NPL ratio, loan to deposit, deposits to shareholders
funds
9.4.2 CAMELS Framework