1.0 EXECUTIVE SUMMARY
As money market is very important to the financial system, especially the economic growth, there is need to review and understand the changes in the money market so that the right responses can be given while confronting with the financial crisis. The objectives of this project are to review the money markets and the securities in Malaysia and to understand an importance of money markets that affect the economic growth.
Firstly, the purpose of the existence money market and its cost advantage is discussed. Next, the money market’s instruments are reviewed. The money market’s instruments include treasury bills, Bank Negara funds, Repurchase Agreement, Negotiable Certificates of Deposit and Banker’s Acceptance. Those money market’s instruments are essential to volatile the liquidity of financial status in Malaysia. In addition, the money market securities are compared using the interest rates as the interest rates are the key factor to stimulate or constrain the economic activities. The significant of this study is to make a deep understanding of the money market in Malaysia. This study can help the finance students to learn more about the relationship between the money market and the economic growth. It is very useful when involving in the businesses of money market. Based on the study, we can see that there is vital to have money market securities in helping the economic growth. Different money market securities can help to provide a low-cost source of funds to the firms, government and especially to the intermediaries instead of depend on the banks only.
Money market is a market for trading short-term, low risk securities such as commercial paper, treasury bills, bankers’ acceptances, and negotiable certificates of deposits. The market is made up of dealers in these securities who are linked by electronic communications. The most important function of a money market is to provide a means whereby economic units can quickly adjust trough cash positions. For all economic units (business, households, financial institutions, or governments) the timing of cash inflows is rarely perfectly synchronized or predictable in the short run. According to the data provider Morningstar Asia Ltd, money market – linked funds registered for sale in Malaysia were the best performing asset type in comparison with commodity and equity funds for the year ended October 31. On average, money market funds delivered positive returns (2.19%) over the period compared with commodity and equity-linked funds, which registered negatives returns. Morningstar told Star Biz that as a result of the uncertain global economic climate, investor risk appetites has been sharply reduced. Higher risk asset classes, such as equities and commodities, typically performed poorly in such an environment, while perceived safe harbors- such as money market linked-funds- generally did better. Furthermore, OSK- UOB Unit Trust Management Bhd. and Meridien Asset Management Sdn. Bhd. had invested in short-term commercial paper with top credit quality, hence sheltering it from the volatility associated with the bond market and to preserve capital and to generate consistent income streams. In addition, Managing director Nicholas Ng of Meridien Asset Management Sdn. Bhd. expected that the stability to continue in the money market, given recent steps taken by Bank Negara to strengthen confidence in the financial system. Also, current account surplus and ample liquidity in the banking system should continue to provide support for the money market. In conclusion, short-term rates on the Malaysian money market remained steady at the opening despite continued ample liquidity in the system as Bank Negara Malaysia intervened to check excess liquidity in the system. On October 23, Bank Negara Malaysia (BNM) today estimated an aggregate surplus of RM 4.44 billion, of which conventional operations accounted for RM1.658 billion while Islamic...
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