Development of the Malaysian Capital Market

1. Development of the Malaysian capital market

Capital market is the securities’ market that provides longer period for business enterprises and governing to raise their long-term funds. The Malaysia capital market is divided into two types, which are primary market and secondary market (Chakra, 2009). They are developed by government at the end of 1980s. (Shimomoto, 1999)

The primary market is also called as New Issue Market (NIM). The primary market is the place for new issued securities to be created and traded. The new securities issued by governments, corporations, and companies are stocks and bonds due to raise their own capitals. Therefore, they will earn the money directly after the investors have bought the securities. This process is called as Initial Public Offering. (World, 2013)

The secondary market is where investors resale the securities which are purchased by them in primary market without involvement of issuing companies. The resale value of securities is depended on the fluctuation of interest rate. The secondary market is divided into auction market and dealer market. The auction market is the area concentrated by investors and institutions to announce the prices and the selling willingness. The dealer market is operated through electronic networks. (Staff, 2014)

The capital market is controlled and managed by KLSE that started to responsible fully at the end of 1989, including the development of capital market infrastructure, the introduction of computerized trading and settlement system. In addition, KLSE is responsible to promote regulatory framework established by government to enhance and measure capital market infrastructure, for examples are credit rating agency (1990), and bond information and dissemination system (1997) (Shimomoto, 1999). Capital Market Master Plan is executed by government from 2010 to 2010 for directing the development of the Malaysian capital market. (Chakra, 2009)

1. Conventional and Islamic financial products that are available in Malaysia

Conventional and Islamic financial institutions play important role in the economy of Malaysia. Conventional financing is the standard and internationally financing system that provides various services to people globally. Besides that, Malaysia plays as an International Islamic Finance Centre (Jeng_llot, 2009) so Islamic financial institutions are managed properly by Bank Negara Malaysia as well as Conventional financial institutions.

All Islamic financial institutions have set up Shariah Committee to guide any matter or action in manner of Shariah principles for submitting the way of life shown by Muhammad SAW (Islamicfinanceinfo, 2011). Therefore, there are a lot of differences between Conventional and Islamic financial products:

1. Identify the types of foreign exchange risks and how to mitigate the risks exposures faced by a company

Foreign exchange risks are the risk of investments’ value changing due to the uncertain movement or change in currency exchange rates. It is also known as “exchange-rate risk” or “currency risk”. Foreign exchange risks are categorised to transaction risk, translation risk, and economic risk. (Investopedia, 2014)

Transaction risks are the risk of exchange rate fluctuation between transaction date and settlement date (Bank, 2012). The longer differentiate between those date has a higher transaction risk. Transaction risks primarily associate with import and export and affect the cash flow of a company. Therefore, companies can hedge market rate through insuring to mitigate the effect of unexpected change in exchange rates. Hedging helps companies to reduce risk, not making profits. Besides that, measuring and monitoring is a method in controlling transaction risks. (Stalin, 2012)