Podcast
Questions and Answers
What is the primary characteristic of securities traded in the money market?
What is the primary characteristic of securities traded in the money market?
- Securities issued by the government only
- Long-term securities with a maturity period of more than 1 year
- Short-term securities with a maturity period of 1 year or less (correct)
- Securities issued by private companies only
What is the purpose of a bank's guarantee in a Banker's Acceptance (BA)?
What is the purpose of a bank's guarantee in a Banker's Acceptance (BA)?
- To provide a discount on the payment
- To ensure the firm's payment is made on time
- To facilitate international trade without a bank's involvement
- To obligate the bank to make good on the draft if the firm fails (correct)
What is the primary function of a Banker's Acceptance (BA)?
What is the primary function of a Banker's Acceptance (BA)?
- To guarantee a firm's payment to a supplier
- To provide a short-term loan to a firm
- To act as a negotiable certificate of deposit
- To facilitate international trade by providing a credit instrument (correct)
What type of securities is typically traded in the money market?
What type of securities is typically traded in the money market?
What is the main difference between a Banker's Acceptance (BA) and a check?
What is the main difference between a Banker's Acceptance (BA) and a check?
What is the primary reason for a firm to use a Banker's Acceptance (BA)?
What is the primary reason for a firm to use a Banker's Acceptance (BA)?
What is the primary function of financial intermediaries in a two-sector economy?
What is the primary function of financial intermediaries in a two-sector economy?
What is the outcome of financial disintermediation?
What is the outcome of financial disintermediation?
What is the characteristic of securities or financial instruments?
What is the characteristic of securities or financial instruments?
What is the purpose of financial markets in a two-sector economy?
What is the purpose of financial markets in a two-sector economy?
What is the difference between direct finance and indirect finance?
What is the difference between direct finance and indirect finance?
What is an example of a financial asset created through financial intermediation?
What is an example of a financial asset created through financial intermediation?
What is the primary benefit of Negotiable Instruments of Deposit (NIDs) compared to Fixed Deposits?
What is the primary benefit of Negotiable Instruments of Deposit (NIDs) compared to Fixed Deposits?
What is the primary purpose of Commercial Paper (CP) issuance by corporations?
What is the primary purpose of Commercial Paper (CP) issuance by corporations?
How are Malaysian Government Securities (MGS) issued?
How are Malaysian Government Securities (MGS) issued?
What determines the price of Malaysian Government Securities (MGS) in the secondary market?
What determines the price of Malaysian Government Securities (MGS) in the secondary market?
How often are dividends paid to holders of Malaysian Government Securities (MGS)?
How often are dividends paid to holders of Malaysian Government Securities (MGS)?
What is the purpose of BNM's monthly published price listing of Malaysian Government Securities (MGS)?
What is the purpose of BNM's monthly published price listing of Malaysian Government Securities (MGS)?
What is the time period for an intermediate-term debt instrument?
What is the time period for an intermediate-term debt instrument?
What type of securities make periodic payments to their holders?
What type of securities make periodic payments to their holders?
In a primary market, who buys new issues of a security?
In a primary market, who buys new issues of a security?
What is the main function of a dealer in a secondary market?
What is the main function of a dealer in a secondary market?
What is the purpose of a secondary market?
What is the purpose of a secondary market?
What type of market is organized through a central location where buyers and sellers meet to conduct trades?
What type of market is organized through a central location where buyers and sellers meet to conduct trades?
What is the primary distinction between direct finance and indirect finance?
What is the primary distinction between direct finance and indirect finance?
Which of the following is NOT a function of a central bank?
Which of the following is NOT a function of a central bank?
What is the primary difference between money markets and capital markets?
What is the primary difference between money markets and capital markets?
Which of the following is an example of a money market instrument?
Which of the following is an example of a money market instrument?
What is the primary driver of adverse selection in lending?
What is the primary driver of adverse selection in lending?
What is the primary purpose of a financial system?
What is the primary purpose of a financial system?
Study Notes
Malaysian Capital Market
- Divided into two parts: market in government securities and market in stock and shares, including other corporate securities
Money Market
- Consists of securities issued in principle for 1 year or less (short-term securities)
- Examples of securities traded: treasury bills, negotiable certificate of deposits (NCDs), commercial papers, banker’s acceptance, and repurchase agreements
Money Market Instruments
- Non-Government Papers
- Bankers Acceptance (BAs)
- A bank draft (promise of payment similar to a check) issued by a firm, payable at some future date, and guaranteed for a fee by the bank that stamps it “accepted”
- Advantages: negotiable compared to Fixed Deposits, holder has opportunity to make profits/minimize losses in anticipation of interest movements
- Commercial Paper (CP)
- Short-term debt instrument issued by large banks and well-known corporations
- Issued for use in short-term borrowing needs, with maturity usually less than 9 months
- Bankers Acceptance (BAs)
- Government Papers
- Malaysian Government Securities (MGS)
- Consist of government bonds and loan stock, which represent government borrowings from the private sector
- Issued on a tender basis from the Treasury via BNM
- Can be traded in the secondary market, with price determined by demand and supply
- Malaysian Government Securities (MGS)
Primary and Secondary Markets
- Primary Market
- A financial market in which new issues of a security are sold to initial buyers by the corporation or government agency borrowing the funds
- Secondary Market
- A financial market in which securities that have been previously issued can be resold
- Securities brokers and dealers are crucial to a well-functioning secondary market
Exchange and Over-the-Counter
- Secondary markets can be organized in two ways:
- Exchanges, where buyers and sellers of securities meet in one central location to conduct trades
- Over-the-Counter markets, where buyers and sellers do not meet in a central location
Functions of a Central Bank
- Regulates and supervises banking systems
- Manages foreign exchange reserves
- Acts as lender of last resort
- Implements monetary policy
- Manages government debt
Money Market Instruments
- Examples:
- Bankers Acceptance (BA)
- Commercial Paper (CP)
- Repurchase Agreements
Adverse Selection
- A problem that arises when one party in a transaction has more information than the other
- Can lead to a situation where it is more likely to make a loan to a family member than to a stranger
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your understanding of lending and borrowing processes in a two-sector economy, including financial intermediation and disintermediation. Learn about the flow of income, savings, and investments between households and firms.
