The financial system is composed of financial institutions, financial instruments, financial markets and financial services to boost transactions for goods and services as well as financial transactions. The purpose of the financial system is to move funds from surplus units to deficit units by a range of institutions and instruments. It channelizes the savings and mobilizes them into the productive activity and therefore affects the pace of economic development. Furthermore, the financial system provides price information to help coordinate decentralized decision-making in economic sector as well as to control risk or manage uncertainty of investments, and also reduce the incentive problems during financial transaction (Robert & Bodie 1995). Moreover, the financial institutions consist of depository financial institutions, contractual savings institutions, investment banks and merchant banks, finance companies as well as unit trusts (Viney & Phillip 2012). In this essay, there are two countries had been selected which are Hong Kong and Malaysia. The purpose is to compare and contrast the financial system of Hong Kong and Malaysia using institutional approach as well as describe the impact and response to the Global Financial Crisis (GFC) in these two countries. 2. Central Bank
2. 1 Role of central bank in Hong Kong and Malaysia
The Hong Kong Monetary Authority (HKMA) is the central bank of the Hong Kong which is a government organization established through banking ordinance in the country. According to HKMA (2013), the responsibility of the HKMA which is the authority of Hong Kong government, is to maintain monetary as well as banking stability. Nevertheless, there are four main functions of the HKMA which is maintaining currency stability within the framework of the Linked Exchange Rate system, promoting the stability and also integrity of the financial system, comprising the banking system, contribute to maintain the status of Hong Kong as an international financial centre, also the develop and maintain financial infrastructure of Hong Kong to enable money to flow smoothly, freely and without obstruction as well as managing the Foreign Exchange Reserves. On the other hand, the central bank of Malaysia which is Bank Negara Malaysia (BNM) is at the apex of the banking system in the country. Based on BNM (2013), prudent conduct of monetary policy is the major role of the Bank which has helped to generally low as well as stable inflation for decades. Therefore, the purchasing power of the ringgit is preserved. Furthermore, it will lead to built up Malaysia public’s living standards due to the strong labor market condition. Also, the principle objectives of BNM are to facilitate sound monetary stability and a strong financial sector in order to enhance the growth of Malaysian economy and thereby, increasing the confidence of banking system and sustaining a high level of banking. Moreover, BNM plays a significant developmental function, comprising development of financial system infrastructure with key focusing on establishing efficient nation and necessary institutions as well as secured payment system (Bank Negara Malaysia 2013). Besides that, the other important objectives of BNM are to be the banker as well as financial adviser to the Malaysian government which managing the debt from public and advising on macroeconomic policies. In addition, to be the one distributing and issuing authority of Malaysian currency as well as keep adequate reserves to safeguard the stability and value of the currency. Furthermore, to facilitate the efficient, reliable and smooth operation of national settlement and payment systems as well as to assure that national settlement and payment system policy is directed to the advantage of Malaysia (Institut Bank-Bank Malaysia 2005).
2.2 Monetary policy in Hong Kong and Malaysia
Monetary policy is a tool whereby central banks influence the interest...
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