Topic 02a Overview of Financial Markets (Compatibility Mode)

30/9/2018
Overview of the 3073

Course BWBB Financial Markets Overview of the Financial Markets
Treasury Management
Session Objectives
At the end of this session, participants should be able to :

Topic No. 2 1. understand the structure of the financial markets
Overview of the Financial Markets through which treasurers operate;
- The Playing Fields 2. get to know who are the major players in the local
prepared by: foreign exchange and money markets;
SS&AMFAB
School of Economics, Finance & Banking 3. reason out why these players are in the market;
UUM College of Business
4. understand the structure of the Malaysian markets;
sshahril@uum.edu.my 5. identify risks in money markets.
Tel : (Office) 04-928 6478
(H/P) 012-5255879
UUM COB SEFB © SS&AMFAB BWBB3073 Treasury Management UUM COB SEFB © SS&AMFAB BWBB3073 Treasury Management
Overview of the Financial Markets Overview of the Financial Markets

Session Objectives Funds Flow and the Financial Markets
At the end of this session, participants should be able to : The financial markets provide the arena for the transfer of funds from
surplus units to deficit units.
1. understandthe
understand thestructure
structure
of of
thethe financial
financial markets
buys financial issue financial
markets through
through which which treasurers
treasurers operate; operate; instruments instruments
2. get to know who are the major players in the local Surplus
Financial Deficit
foreign exchange and money markets; Units Markets Units
places lends
3. reason out why these players are in the market; money money
Funds flow and the relationship between suppliers and users
5. identify risks in money markets.
of funds and the financial markets acting as conduit through
which money was channeled.

Interconnection between the Financial Markets Interconnection between the Financial Markets
EQUITY DERIVATIVES
EQUITY FOREIGN
MARKET MARKET
BOND DERIVATIVES MARKET EXCHANGE
FINANCIAL
MARKET MARKET MARKET
MARKETS
MONEY FX
MARKETMARKET BOND MONEY
MARKET MARKET
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What is the Money Market?
● An arena through which one is able to

a) borrow and lend money; and
b) buy and sell money market instruments
THE
MONEY ● The commodity that is traded in this market is
MARKET “money” or “near-money”.
● The bulk of assets traded in the money market have a
maturity of less than a year.

What is the Money Market? Money Markets Vs Other Financial Markets
lends
money
Money Markets Bond Markets Equity Markets
● Short term debt ● Medium to long- ● Long-term

Money term
Surplus Deficit
Units
Market
Units ● Non-permanent ● Non-permanent ● Permanent
funding funding funding
place …an arena that connects

● 1 day to 1 year ● 1 year to 30 yrs ● Perpetual
money surplus units and deficit
units

Equity Markets
● involves medium to long term borrowing but in this case interest is not paid to
How Different is Money Market with Forex?
the lender
● borrowing institutions issue stocks or shares to investors who become part Class Exercise
owners of the organization
● Investors may or may not be paid dividends on their shares depending on how
well the organization performs What are the similarities and the differences between a
Bond Markets money market and a foreign exchange market ?
● debt market that generally pay interest on instruments for a fixed period of time
for loan periods over 12 months up to 30 years
● also known as the Fixed Income Markets
● involve medium to long term borrowing
(1 to 10 year instruments are called notes and
instruments exceeding 10 years in maturity are called bonds)
Money Markets
● characterized by borrowing and lending large amount of money
● for short periods – typically one day up to, and including 12 months
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How Different is Money Market with Forex? How Different is Money Market with Forex?
Class Exercise Possible Answers Class Exercise Possible Answers
Among the differences between the two markets are:
Among the similarities between money market and foreign
exchange market are: ● Commodities traded in the money market are denominated in
domestic currencies, while in the foreign exchange market it
● Both are financial markets that facilitate the flow of funds involves the exchange of different currencies,
between participants, ● The price of commodities traded in the money market is based on
rate of interests or a reflection thereof such as discount rates or bond
● Both markets provide avenues for end users to invest surplus
prices based on par value of 100. In the foreign exchange market,
funds and to hedge risks in financial exposures, the price mechanism is based on a ratio of a unit of one currency to
● Both markets are avenues for the central bank to manage the number of units of a corresponding currency and is normally
the nation’s monetary policies, expressed as a rate of exchange,
● Market participants do not converge in one marketplace but ● The main activities in the money market are borrowing and lending
are linked through telephone networks and electronic of currencies and buying and selling of money market instruments at
systems such as those provided by Reuters, Telerate and a price called the rate of interest. In the foreign exchange market,
the main activity is the buying and selling of one currency against
Bloomberg dealing systems.
another currency at a price expressed in terms of rate of exchange.

Why The Need For Money Market? Why Banks Need Money Market?
TO MANAGE LONG POSITION
Basically used by banks and non-banks for ● Lend out to other banks in deficit position
▪ Cash Management ● Invest in financial instruments
Liquidity Mgmt ● Initiate Reverse Repo transactions
▪ Interest Rate Exposure Management
● Buy short term money market instruments All these activities
Also used by central banks in implementing take place in the
monetary policies by MONEY MARKET
▪ steering the interest rates

▪ signalling monetary policy intentions Monetary Policy
Mgmt
▪ managing liquidity in the market

Why Banks Need Money Market? Why Banks Need Money Market?
TO MANAGE LONG POSITION LONG POSITION
● Lend out to other banks in deficit position ● Lend out to other banks in deficit position
● Invest in financial instruments ● Invest in financial instruments
● Initiate Reverse Repo transactions ● Initiate Repo transactions
● Buy short term money market instruments All these activities ● Buy short term money market instruments
take place in the
TO MANAGE SHORT POSITION MONEY MARKET SHORT POSITION
● Borrow from other banks with surplus position ● Borrow from other banks with surplus position
● Sell stocks of liquid assets (outright basis) ● Sell stocks of liquid assets (outright basis)
● Initiate Repo transactions ● Initiate Reverse Repo transactions
● Seek BNM as lender of last resort ● Seek BNM as lender of last resort
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Session Objectives Participants of the Money Market
At the end of this session, participants should be able to :

Major players are
1. understand the structure of the financial markets
a) Central Bank (e.g. BNM)
through which treasurers operate;
b) Commercial Banks (e.g. Maybank, CIMB)
2. get to know who are the major players in the local
c) Other Banking Institutions (e.g. SME Bank)
foreign exchange and money markets;
d) Non-Bank Financial Institutions (e.g. TH, EPF)
3. reason out why these players are in the market;
e) Non-Financial Corporate Businesses (e.g. Petronas)
f) Societies/Associations/Individuals
5. identify risks in money markets.

What do they do in the Money Markets What do they do in the Money Markets
Through the money market, participants are able to:
They LEND and BORROW money

1. borrow and lend funds;
1. to square position (the undesirable position);
2. buy and sell money market instruments; and
2. to create new position (profit motive).
3. borrow and lend money of different countries

What do they do in the Money Markets What do they do in the Money Markets
They also deal in FOREIGN MONEY to

They trade in Money Market INSTRUMENTS
1. facilitate customers’ import and export trade;
1. as it is mandatory to keep some liquid assets;
2. facilitate customers’ foreign currency funding
and investments;
2. for funding / investment purposes;
3. for trading purposes.
3. for trading purposes.
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What do they do in the Money Markets What is the Money Market?
Broadly speaking the money market provides,
The Money Market is made up of 3 components:
(i) For Lenders (Placers)

1. The Domestic Money Market
an effective utilization of surplus funds
2. The External (Foreign) Money Market
(ii) For Borrowers (Takers)
an access to large pools of short term funds at 3. The Islamic Money Market
competitive prices

What is the Money Market? Participants of the Domestic Money Market
The Money Market is made up of 3 components: Major players are

a) Commercial Banks
1. The Domestic Money1.
Market b) Central Bank
The Domestic c) Other Banking Institutions
Money Market d) Non-Bank Financial Institutions
3. The Islamic Money Market e) Non-Financial Corporate Businesses
f) Societies/Associations/Individuals

Participants of the Domestic Money Market Participants of the Domestic Money Market
a) Commercial Banks a) Commercial Banks
Why Does Commercial Banks Operate in the Money Market? Why Does Commercial Banks Operate in the Money Market?
i. To maintain liquidity, and therefore its

solvency
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a) Commercial Banks a) Commercial Banks
Why Does Commercial Banks Operate in the Money Market? Why Does Commercial Banks Operate in the Money Market?
i. To maintain liquidity, and therefore its i. To maintain liquidity, and therefore its
solvency solvency
ii. To use excess funds so that they produce the ii. To use excess funds so that they produce the
highest possible return highest possible return
iii. To borrow necessary funds at the lowest
possible cost

Structure of the Money Market in Malaysia At the Inter-bank Money Market …
● these are basically the wholesale secondary market for

ringgit loans and deposits between approved and
… can be broadly divided into authorised financial institution
● parties are commercial banks, investment banks, approved
● Wholesale (Inter-bank Market), and
finance companies, and Cagamas Berhad with money
brokers acting as intermediaries
● Retail (Commercial Market)
● there is no physical location and transactions are executed
via intermediaries such as money brokers or direct via
telecommunication networks or dealing screens

In the Inter-bank Money Market … Players of the Inter-bank Money Market …
● direct lending and borrowing among participants take Consists of Approved Dealers and Principal Dealer such as :
place. Funds lent or borrowed are of short term tenors,
usually between overnight to twelve months; •Commercial Banks
● financial instruments are traded; •Investment Banks
● money brokers act as middlemen between lenders •Cagamas Berhad
and borrowers. They play an important role especially in a
Money brokers may act as intermediaries but not
fast moving and active market; permitted to act as principal or to act in any
● the central bank acts as market regulator. It engages discretionary fund management capacity
in open market operations to influence the supply of
money in the banking system, stabilize interest rates, etc. To promote the bond market, money brokers are
in order to bring about a more desirable and systematic allowed to extend their broking services to Universal
market environment. Brokers (UBs) in the unlisted PDS market.
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Players of the Inter-bank Money Market … Players of the Inter-bank Money Market …
UBs are allowed to be members of FAST, BIDS and RENTAS
systems. For settlement through RENTAS, UBs are required to
appoint a settlement bank.
Approved Dealers – financial institutions that are authorized to Trading in the inter-bank market are
transact in SSTS securities for their own account or on behalf of guided by the “Code of Conduct and
3rd parties. They are not permitted to tender directly for new Market Practices and Fundamental
issues of securities such as MGS and MTBs. Principle”
Principal Dealers – they bid or tender for securities that are
sold on tender basis and they have an obligation to tender for “MY WORD IS MY BOND”
any new securities. Act as conduit in BNM’s open market
operation.

At the Commercial Money Market … Key Players in the Malaysian Money Market
● there are other players like non-bank financial

institutions, corporate bodies, government agencies, ● Bank Negara Malaysia
statutory bodies, trust and pension funds, insurance ● Commercial Banks
companies, cash-rich individuals, etc; ● Investment Banks
● Khazanah Berhad
● they utilize their temporary surplus funds; ● Cagamas Berhad
● either direct placements in fixed deposits or term ● EPF
deposits or call money; or ● Fund Managers
● Insurance Companies
● through purchasing of money market instruments ● Major Corporations
● they have no access to direct borrowing from the ● Cash-rich Individuals
money market ● Money Brokers

Functions of a Money Market Department Participants of the Domestic Money Market
Basically a Money Market Department of a banking b) Central Bank
institution performs the following functions:
♦ To manage the bank’s reserve account at the central
bank Most central banks has the objectives to achieve
♦ To manage the bank’s liquid assets by complying to • real economic growth
BNM’s New Liquidity Framework
• price stability
♦ To manage the bank’s excess funds
• external balance of payments equilibrium
♦ To source for financing when bank is in deficit
• full employment
♦ To take proprietary money market position through
trading in approved money market products and
instruments
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b) Central Bank b) Central Bank
At central banks, these objectives are translated The central bank implements monetary policies by
into MONETARY POLICY. Their main concern is in
determining ▪ steering the interest rates
▪ signalling monetary policy intentions
▪ the desired level of money supply
▪ the desired level of interest rates ▪ managing liquidity in the market

The tools used by central banks to achieve these The tools used by central banks to achieve these
objectives include: objectives include:
1. buying and selling money market instruments (OPEN MKT )

1. buying and selling money market instruments (OPEN MKT ) 1. buying and selling money market instruments (OPEN MKT )
2. direct borrowing and lending (MONEY MKT OPERATIONS)
▪ Refers to the intervention action through the purchase or sale of
securities (usually government papers) through Principal Dealers ▪ Money tender conducted through borrowing and lending on the
to affect the reserves of banks and thereby the flow of credit and money market
money ▪ Intervention via agent banks to smoothen fluctuation in liquidity or
▪ Repo and Reverse Repo to mop up the surplus liquidity in the system
▪ Sale of securities cause credit supply to shrink
▪ Issuance of BNMN
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1. buying and selling money market instruments (OPEN MKT ) 1. buying and selling money market instruments (OPEN MKT )
2. direct lending and borrowing (MONEY MKT OPERATIONS) 2. direct lending and borrowing (MONEY MKT OPERATIONS)
3. changing the cost at which banks can borrow money from 3. changing the cost at which banks can borrow money from
the central bank (DISCOUNT OPERATIONS) the central bank (DISCOUNT OPERATIONS)
▪ Temporary access to central bank credit facilities through rediscounting of eligible
short term assets or secured advances for short periods to meet unexpected
▪ more
[For Temporary access to central bank credit facilities through rediscounting of eligible
details
short term assets oron howadvances
secured banksforare shortcharged for unexpected
periods to meet using the
withdrawals discount window, visit www.bnm.gov.my and look for the
withdrawals
▪ The discount rate has psychological importance as a change in the rate by the
central bank reflects the dynamic policy more to signal the intended course of
▪ central bank reflects
The discount
announcement rate has psychological importance as
of 26 April 2004 on the New Interest a change in the rate by the
the dynamic policy more to signal the intended course of
Rate
monetary policy Framework]
monetary policy
▪ Also used to provide specific purpose to promote certain instruments or priority
sectors
▪ Also used to provide specific purpose to promote certain instruments or priority
sectors

Participants of the Domestic Money Market Participants of the
▪ In Malaysia, Domestic
banking Money
imstitutions areMarket
required to
b) Central Bank maintain
b) Central a certain
Bank percentage of the bank’s eligible
liabilities (EL) as reserves (SRR) with BNM
The tools used by central banks to achieve these The
▪ Although SRRbyhas
tools used central banksastoa achieve
been used monetarythese
policy
instrument, it is also part of the safety net put in place
1. buying and selling money market instruments (OPEN MKT ) for theand
1. buying protection of depositors
selling money market instruments (OPEN MKT )
2. direct lending and borrowing (MONEY MKT OPERATIONS) ▪ direct
2. SRRlending
can and
influence
borrowingthe(MONEY
capacity
MKTtoOPERATIONS)
create deposit
3. changing the cost at which banks can borrow money from 3. changing
money. the Thecost
ratioatrestricts
which banks can borrow
the growth money
of bank from
deposits
the central bank (DISCOUNT OPERATIONS) the central bank (DISCOUNT OPERATIONS)
thereby affecting the expansion of credit
4. changing the amount of reserves that banks are required to 4. changing the amount of reserves that banks
▪ An increase in SRR results in higher reserves kept are required to
keep against deposits (SRR) keep against deposits (SRR)
with the central bank, thus causing the amount of cash
available for credit creation to decrease
▪ As a monetary management instrument, a change in
SRR affects all sectors in the economy.
Overview
The Domestic
of theMoney
Financial
Markets
Markets Overview of the Financial Markets
Participants of the
banking Money
required to Participants of the
banking Money
required to
Statutory Reserve Requirement of Banking Institutions
maintain
b) Central a certain
Bank percentage of the bank’s eligible maintain a certain
b) Central Bank percentage of the bank’s eligible
liabilities (EL) as reserves (SRR) with BNM liabilities
Bank Negara (EL) as announces
Malaysia reserves (SRR)todaywith BNM
the reduction in the
The
▪ Although SRRbyhas
tools used central banksastoa achieve
been used monetarythese
policy The tools
▪ Although
Statutory Reserveused
SRR byhascentral
Requirement banksas
been (SRR)
used oftoa achieve
monetary
banking these
policy
institutions.
objectives include:
instrument, it is also part of the safety net put in place objectives
With effect include:
instrument,
from 16 it isSeptember
also part of the safety
1998, the SRR net of
putcommercial
in place
for theand
1. buying protection of depositors
selling money market instruments (OPEN MKT ) banks, for theand
1. buying
finance protection
selling money
companies of depositors
market instruments (OPEN MKT
and merchant banks will be )
reduced
What and
[ lending is the reserve level that banks in by two percentage points from 6% to 4% of their eligible
▪ direct
2. SRR can influence
Malaysia
the(MONEY
borrowing
must observe
capacityMKT
at can
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▪
2. SRR
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and the
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(MONEY MKTtoOPERATIONS)
create deposit
3. changing
money. the Thecost
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the growth money
of bank from
deposits 3. changing
money. the
Thecost
ratioatrestricts
which banks can borrow
the growth money
of bank from
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the central affecting
thereby bank (DISCOUNT OPERATIONS)
the expansion of credit the central
thereby
The measure bankto(DISCOUNT
affecting
aims
thethe OPERATIONS)
expansion
further reduce
of credit
the cost of funds to banking
4.
▪ changing
An increasethe amount
in SRRof reserves
results that banks are
in higher requiredkept
reserves to 4.
▪ changing
institutions andtheimprove
An increase amount of reserves
ininstitutions
SRR that banks
distribution
results
of are
in higher requiredamong
liquidity
reserves to
kept
keep against deposits (SRR) keep against deposits (SRR)
individual banking thereby enhancing lending
with the central bank, thus causing the amount of cash capacitywith thebanking
of the central bank, thus causing the amount of cash
institutions.
available for credit creation to decrease available for credit creation to decrease
Bank Negara Malaysia
▪ As a monetary management instrument, a change in ▪ As a monetary
07 September 1998 management instrument, a change in
SRR affects all sectors in the economy. SRR affects all sectors in the economy.
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Participants of the Money Market ▪ Prior to Aprilof2004,
Participants banking institutions
the Domestic MoneyinMarket
Malaysia are
required to maintain a minimum liquidity ratio to
a) Central Bank ensure that they
b) Central Bank are liquid at all times to meet deposit
The tools used by central banks to achieve these The withdrawals
tools usedofby theircentral
customers
banks to achieve these
objectives include: ▪ The ratio
objectives was expressed as a percentage of eligible
include:
liability (EL) base
1. buying and selling money market instruments (OPEN MKT ) 1.
▪ buying and selling
The liquid money
assets aremarket instruments
items that can (OPEN
be MKT )
easily
2. direct lending and borrowing (MONEY MKT OPERATIONS) 2. direct lending and borrowing (MONEY MKT OPERATIONS)
converted into cash
3. changing the cost at which banks can borrow money from 3. changing the cost at which banks can borrow money from
the central bank (DISCOUNT OPERATIONS) ▪ the
Also usedbank
central for selective
(DISCOUNTcredit policy purposes to direct
OPERATIONS)
4. changing the amount of reserves that banks are required to credit into
4. changing thedesired
amount areas suchthat
of reserves as banks
government papers
are required to
keep against deposits (SRR) and against
keep Cagamas bonds(SRR)
deposits
▪5. issuing
Under specific
the thenregulations
requirements, commercial banks kept
pertaining to rates and type of
5. issuing specific regulations pertaining to rates and type of
17% liquidity
assets ratio that banks are allowed to hold
and liabilities
assets and liabilities that banks are allowed to hold ▪ (LIQUIDITY
Under theREQUIREMENTS)
New Liquidity Framework, banks do not
(LIQUIDITY REQUIREMENTS)
need to maintain a minimum liquidity requirement

c) Other Banking Institutions d) Non-Bank Financial Institutions
• The purpose of their involvement in the money market is similar • They have the same objectives for involvement in the
to that of a commercial bank. money market similar to that of a commercial bank.
• They have liquidity position to maintain and at the same time • They focus however, more towards short-term
any excess funds need to be put to maximum use (maximum borrowings and investments in instruments.
returns).
• Consider the case where the business unit pays out or receives
cheques. What would be the impact to the cash position of the
company?

e) Non-Financial Business f) Individuals
■ anybody who owns a current account is a The motive of individuals for holding cash or near cash
participant in the money market instruments depends on:
■ for transaction purposes,
■ so is the person who owns a fixed deposit account
to make payments for desired articles
or a T-Bill
■ for precautionary purposes,
■ the buying and selling of instruments (by writing a
in case some unforeseen event takes place
cheque or by actually acquiring & disposing of the
relevant papers) contribute participation in the ■ for speculation purposes,
money market i.e. to profit from unexpected changes in rates of
interest
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Retail Interbank Retail What is the Money Market?
Market Market Market
Mixed of
Non-bank Interbank Non-bank
Lenders Lenders / Borrowers
Borrowers
● Repo ● Direct lending ● Sale of

Market
placement & borrowing Financial
of Ringgit Instruments
● Purchase of ● Trading of ● (Loans /
The Foreign
Financial
Instruments
Financial
Instruments
Advances)
● (Savings / ● Repo / ● No direct
Money Market
Fixed Reverse Repo access to 3. The Islamic Money Market
Depots borrowing
● Swaps
● Foreign
currency
lending /
borrowing

What is the Foreign Money Market? What is the Foreign Money Market? (Contd.)
► Domestic money market trade in funds Usually the money or near-money traded in this market
denominated in local currency and operate under is referred to as the EUROCURRENCY.
regulations governing domestic markets.
► When currencies are traded outside the regulations ► Eurodollar
governing domestic markets in that currency, the ► Euroyen
activity takes place in a foreign or external money ► Eurofranc
market. ► etc
e.g. when US dollar is traded outside the United
States territory

What is the Foreign Money Market? (Contd.) What is the Foreign Money Market? (Contd.)
EUROCURRENCY WHY THE EURODOLLAR MARKET?

▪ indicates only a geographical area where the market exists ▪ historically it was first created to reduce a perceived
▪ does not identify the exact country where the foreign sovereign risk
currency market occurs ▪ after WW2, the Eastern-bloc countries have plenty of
▪ country of borrower, however, is important reserves in US dollars
▪ naturally the dollar would have been kept in deposits
-b’cos local regulations may make it impossible for or securities in the United States
borrower to repay the loan ▪ the effect of the Cold War – Eastern-bloc countries
-political risk, cross-border risk, sovereign risk prefer to place US dollar deposits outside the United
States
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What is the Foreign Money Market? (Contd.) What is the Foreign Money Market? (Contd.)
WHY THE EURODOLLAR MARKET? (Contd.) WHY THE EURODOLLAR MARKET? (Contd.)
▪ the Euro market developed further as countries ▪ the Euro market developed further as countries
came out with regulations to control the domestic came out with regulations to control the domestic
banking system and to the foreign exchange of banking system and to the foreign exchange of
their domestic currencies. their domestic currencies.
▪ domestic banking system
reserve requirements & interest rate levels
▪ foreign exchange
currency appreciation & depreciation
capital inflows & outflows

Class Exercise Class Exercise Possible Answers
Differentiate between the US dollars transacted in New Differentiate between the US dollars transacted in New
York and the Eurodollars transacted in Frankfurt. York and the Eurodollars transacted in Frankfurt.
Domestic US dollars are assets and liabilities denominated in US dollars in

the books of financial institutions in the United States subject to domestic
banking regulations.
Eurodollars are US dollar assets and liabilities in the books of banking

institutions outside the regulations affecting domestic deposits in the United
States.
The major difference between a Eurodollar deposit and a domestic U.S.

dollar deposit is that trading in the Eurodollar deposit is unregulated and
there are no reserve requirements imposed on a Eurodollar deposit.

What is the Money Market?

Market FOREIGN
The Islamic EXCHANGE
2. The ExternalMoney
(Foreign) Market
Money Market MARKET
(refer to Slides in Topic 03c)
3. The Islamic Money Market
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What is Foreign Exchange ? What is Foreign Exchange ?
The exchange of a currency of one country for The exchange of a currency of one country for
the currency of another. the currency of another.
The Foreign Exchange Market
An arena through which one is able to transfer

purchasing power from one country to another.

The Foreign Exchange Market Why The Need For Foreign Exchange Market ?
“The foreign exchange market is

the arena through which one is The foreign exchange market is inevitable because :
able to transfer purchasing
power, provide credit for 1. each and every country in the world has its own
international trade transactions national currency, and
and provide means of minimizing 2. international trade and investments and related
exposure to the risk of exchange transactions
rate fluctuations.”
D.K. Eiteman and A.I. Stonehill

The Need For Foreign Exchange In Settlement Trade Settlement Options
of Import - Export Trade
IMPORTER Normally have his country’s

(Japan) currency, the JPY, to pay for
his purchase 1. Using the importer’s national currency
i.e. the JPY
2. Using the exporter’s national currency

EXPORTER Normally wants to be paid in i.e. the MYR
(Malaysia) his country’s currency, i.e.,
the MYR
3. Using a neutral currency
e.g. the US$
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Overview of the Financial Markets

OVERVIEW OF THE FOREIGN EXCHANGE MARKET IN MALAYSIA
INTERBANK RETAIL
FEATURES
MARKET MARKET
Commercial Banks
Corporations
Commercial Banks
Importers/Exporters
Brokers Participants
Investors
Central Bank
Travellers
Central Bank
Buying / Selling of
Spot Dealing, Foreign Exchange for
Main Activities
Forward, Swaps value same day or
forwards
Normally US Dollars Normally foreign
against various Commodity Traded currencies against local
currencies currency
USD3.0 million Standard Amount Any Amount
Interbank Rates Pricing Commercial Rates
Spot Date Settlement Dates Any Time
UUM COB SEFB © SS&AMFAB BWBB3073 Treasury Management
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30/9/2018

Overview of the 3073

At the end of this session, participants should be able to :

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

● An arena through which one is able to

Overview of the Financial Markets Overview of the Financial Markets

● Short term debt ● Medium to long- ● Long-term

place …an arena that connects

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

▪ steering the interest rates

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

At the end of this session, participants should be able to :

Overview of the Financial Markets Overview of the Financial Markets

Through the money market, participants are able to:

They LEND and BORROW money

Overview of the Financial Markets Overview of the Financial Markets

They also deal in FOREIGN MONEY to

Overview of the Financial Markets Overview of the Financial Markets

(i) For Lenders (Placers)

Overview of the Financial Markets Overview of the Financial Markets

The Money Market is made up of 3 components: Major players are

Overview of the Financial Markets Overview of the Financial Markets

i. To maintain liquidity, and therefore its

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

● these are basically the wholesale secondary market for

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

● there are other players like non-bank financial

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

1. The Domestic Money2.

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

EUROCURRENCY WHY THE EURODOLLAR MARKET?

Overview of the Financial Markets Overview of the Financial Markets

Overview of the Financial Markets Overview of the Financial Markets

Domestic US dollars are assets and liabilities denominated in US dollars in

Eurodollars are US dollar assets and liabilities in the books of banking

The major difference between a Eurodollar deposit and a domestic U.S.

Overview of the Financial Markets Overview of the Financial Markets

The Money Market is made up of 3 components:

1. The Domestic Money3.

Overview of the Financial Markets Overview of the Financial Markets

An arena through which one is able to transfer

Overview of the Financial Markets Overview of the Financial Markets

“The foreign exchange market is

D.K. Eiteman and A.I. Stonehill

Overview of the Financial Markets Overview of the Financial Markets