fin 4806 - group 5 - investment in securities

8/11/2019 Fin 4806 - Group 5 - Investment in Securities

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FIN 4806

WEALTH PLANNING AND

MANAGEMENT

GROUP 5

NAME MATRIC NO

WAN NOOR AINI BTE WAN ZAHIDI UK 25640

AINAL MARDHIYAH BINTI MD. HASSAN UK 26015

NOOR ARTIKAH BINTI ARIFF UK 26319

NOR FARA SHAHIRAH BINTI KAMAL UK 26479

NUR FARAHIN BINTI MOHD YUSOFF UK 28012

AIDAH SHAKIRAH BINTI RAZALI UK 28030

INVESTMENT IN

SE URITIES



CH PTER OUTLINE

• Introduction

• Types of Securities (include Investment

in Unit Trusts)

• Price Determination

• Risk Elements

•

Related Theories• Laws Relating to Securities



QUESTION

Investment in securities are not really popular

especially among Malaysian investors. People

seems neglected the pivotal role of securities in

the economy. Kindly give your opinion on

below statement and discuss the issues related

to this. Please also identify risk elements

inherent in the investment in securities.



INTRODUCTION



Types of Securities include

Investment in Unit Trusts)



Price Determination



Risk Elements

• Risk is simply the measurable possibility of

either losing value or not gaining value.

• In investment terms, risk is the uncertainty that

an investment will deliver its expected return.

• You must first understand that no investment is

without risk and that there is a trade-off

between returns and the amount of risk aninvestor is willing to assume in order to reach his

or her financial goals.



Type of risk

• There are several type of risk of investment

in securities:

– Interest Risk Rate (IRR)

– Market risk

– Default risk

– Inflation risk

– Mortality risk



Interest Risk Rate (IRR)• Whenever investors buy securities that offer a fixed rate of

return, they are exposing themselves to interest rate risk. This is

true for bonds and also for preferred stocks.

• The risk of loss due to a change in interest rates. Interest rate risk

is important to transaction like interest rate swaps.

• In such a transaction, the party receiving the floating rate will

receive a smaller amount should the floating rate decrease.

• Interest rate risk is also important to bond; if interest rates rise,

the prices of bond fall. if interest rates rise, the prices of bonds

fall.

• This affects the secondary market for bonds; for example, if one

purchases a bond with a 3% interest rate and the prevailing rate ri

ses to 5%, it becomes difficult or impossible to resell the bond at

a profit.



Market Interest Rates and Prices of Fixed-

Rate Bonds Move in Opposite Directions

Higher market interest rates lower fixed-rate bond prices

Lower market interest rates higher fixed-rate bond prices



Market Risk

• The risk that the bond market as a whole would decline,bringing the value of individual securities down with itregardless of their fundamental characteristics.

• Market risk considers a broader picture. If you areinvested in stocks, particularly if you choose the lessexpensive (but not necessarily safer) route of investing ina broad stock-based index fund, you have to accept thatthe overall economic condition of the country — or eventhe world — will cause your investment’s value tofluctuate.

• Market risk is relevant also for investments in singlecompanies, bonds, or other products.

• A market crash or decline could crush this investment’s performance, even if the quality of your investmentremains the same.



Default risk

• Default risk is related to the quality of the underlyinginvestment, and it is more apparent when investing ina single company, through stocks or bonds.

• If you invest in a company’s bond or a municipality’s, you generally expect a guaranteed return.

• The promised return is usually higher than what asavings account would provide, but you face the riskof default.

• If the company files for bankruptcy of if themunicipality is mismanaged, it’s possible you won’t receive the return you were promised.



Inflation risk

• Inflation causes tomorrow’s dollar to be worth less thantoday’s; in other words, it reduces the purchasing powerof a bond investor’s future interest payments andprincipal, collectively known as “cash flows.”

• Financial planners like to assume that inflation runs about3 or 4 percent a year over long periods of time.

• This allows planners and investors to calculate expected“real” returns for an investment.

• If you assume inflation is 3 percent and your savings

account earns 1 percent APY(Annual Percentage Yield),your real return is a loss of 2 percent a year. This realreturn takes the effect of inflation into account.



Inflation risk

• There is a chance, however, that during any particular time,

the measure of inflation — or for a more accurate

description in this case, the increase of the cost of goods — is significantly more than 3 percent.

• If the country were to enter a period of hyperinflation,

investments in your savings account until banks offer more

appropriate interest rates would result in devastating losseswhen compared to consumer prices.

• Inflation also leads to higher interest rates, which in turn

leads to lower bond prices. Inflation-indexed securities such

as Treasury Inflation Protection Securities (TIPS) are

structured to remove inflation risk.



Related Theories



Overview of securities law

• exists because of unique informational needs of investors. Securitiesare not inherently valuable, their worth comes only from the claimsthey entitle their owner to make upon the assets and earnings ofthe issuer or the voting power that accompanies such claims.

• The value of securities depends on the issuer's financial condition,products and markets, management, and the competitive andregulatory climate.

• Securities laws and regulations aim at ensuring that investorsreceive accurate and necessary information regarding the type andvalue of the interest under consideration for purchase.

•Securities regulations focus mainly on the market for commonstocks. Both federal and state laws regulate securities.

17



Securities industry in Malaysia isgoverned by the act of parliament :

Securities Industry Act (Securities Industry Act) 1983

Central Deposits Act (Securities Industry (CentralDepositories Act) 1991)

The Securities Commission (Securities Commission Act)1993

Companies Act (Companies Act) 1965

Industry Act 'Futures' 1993 (Futures Industry Act 1993)

Coastal Industry Act 1995 Labuan (Labuan OffshoreSecurities Industry Act 1995)

18



Securities Commission

(Securities Cimission / SC)

• incorporated under the Securities

Commission Act 1993.

•provide rules and advise the minister ofFinance on all matters relating to the

securities industry contracts and futures

19



Function of Securities Commission(Securities Cimission / SC)

Oversee the market,clearing houses and

central deposit.

Registration ofcompaniesprospectus.

Approve theissuance of

corporate bonds.

Manage all mattersrelating to futures

contracts andsecurities.

Manage theacquisition andconsolidation of

companies.

To manage allmatters relating tounit trust schemes.

Manage andoversee the

licensing of a licensefor those who have

a license.

Encouraging self-regulation

To ensure correctoperation of marketinstitutions and thepeople who have a

license.

20



SECURITIES COMMISSION

• known as the SC, was set up in 1993 under theSecurities Commission Act 1993.

• This statutory body is self-funded and it isentrusted with investigative as well asenforcement powers.

• The objective of this commission is to regulateand systematically develop the capital market inMalaysia.

• SC is also entrusted with the responsibility ofprotection of investors. The SecuritiesCommission comes under the jurisdiction of theMinister of Finance.

21



Functions of the Securities

Commission :

Registration of Prospectuses of firms in initial

public offerings Engaging or IPOs.

Supervision of the Following Institutions:

(a) Stock exchange

(b) Clearing houses

(c) Central depositories.Approval of private debt securities (PDS)

issues.

22



Regulation of all matters relating to:

(a) Securities and futures contracts and options

(b) Mergers and Acquisitions(c) Units Trusts.

Licensing, Supervision and Ensuring the ProperConduct of all licensed persons relate to the

capital market such as brokers and remisiers.

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• Compact the proper Conduct of Institutions in the securitiesmarket

- Unit Trusts (ex : markets)

-Registrar of Companies (Registrar of Companies / ROC)

-Foreign Investment Committee (Foreign Investment

Committee / FIC)

-KLSE (Kuala Lumpur Stock Exchange / KLSE)(ex : Bursa Malaysia

Berhad)

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AMENDMENTS TO THE

SECURITIES LAWS

25

SecuritiesIndustry

(Amendment)Act 2003 (SIA)

the SecuritiesCommission

(Amendment)Act 2003

FuturesIndustry

(Amendment)Act 2003

Securities

Industry(Central

Depositories)(Amendment)

Act 2003



ADVANTAGES OF THEAMENDMENT

Strengtheningclearing andsettlement

arrangements

Enhancingclient assetprotection

Introducingwhistleblowing

provisions

Strengtheningframework on

investment

advice

Enhancing civiland

administrativeaction powers

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fin 4806 - group 5 - investment in securities

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