TMA 1

NAME: CHAN MING ENSTUDENT ID: 041130495CLASS: 4BFS1TUTOR’S NAME: TAN KOCK LIM

QUESTION 1

The difference between 1988 Capital Accord and Basel II is that in 1988 Capital Accord, it more focus on the every single risk measure to measure the credit and the risk of market on the capital adequacy ratio. Besides that, the 1988 Capital Accord also promote that “one size fits all” where it has no any material gradation of the risk, and it has less definitive and detailed structure.

On the other hand, the Basel II have provides the more flexible and comprehensive approach for managing and measuring the risks, therefore it helps in increased the risk sensitivity in the process. To become the new charge, in Basel II, it has adds on the operational risk. Basel II also promotes the management in the banks’ internal risks methodologies. As a part of risk assessment, Basel II incorporates the supervisory review and the market discipline.

QUESTION 2

There are many among the functions of Bank Negara Malaysia (BNM), for example, BNM will always make sure there have enough reserve to safeguards the value of the economy, by issuing the currency. This is to avoid the happening of a sudden withdrawal from the public, because if happen that the public wish to withdraw their money, and the bank cannot fulfilled their demand, it will cause the happening of unstable economy.

Besides that, the BNM also will act as the financial advisor and the banker to the government. For example, the BNM will advise the government to do the suitable investment to expand the Malaysia’s financial status. BNM will then advise the government on how to control the money supply in the market too.

The BNM also acting an important role as it can promote the stability and sound the financial structure in the economy. This is because the BNM will always reserve the sufficient money supply to the public

BNM also will influence the situation of credit in the advantages of our country – Malaysia.

The BNM will always be there to supervised the foreign exchange and money market to ensure it will not been misuse by the others to perform any money laundering activity.

BNM also act as a leader and the last resort to all the banks. For example, when a commercial bank face the situation that they do not have the enough money supply to fulfilled their customer’s needs, the bank will either choose to “borrow” from the other nearest branches, or other bank nearest branches. When in the case of other bank also have not enough money supply, the bank will then need to take from the BNM too, as the BNM is the last resort for them, because the bank cannot comes to the situation that did not have enough money for the public to withdraw as it may lead to unstable economy and market will happen.

QUESTION 3

Common Stock

A common stock have two principles where the principle of the governance and ownership, and the other one is residual and limited liability. The common stock is an action of representing the ownership stake in the respective corporation. The company will laid down in the charter of incorporation with the common stock. The charter will then give out the number for authorised and issue shares. The authorised shares is the maximum limit that the related company to be entitle to issue out the shares.

While, the shareholder of the company is the part of the owner for the company’s assets and the profit of it. The common share has no any maturity date or tenure. The share can be claim when the company is closing down after the company has clear up the liability from the other creditors such as government, and banks.

A common shareholder will have a limited rights in the company. For example, the common shareholder will have the rights to give a vote to choose the right person as the board of directors. Besides this, the common shareholders will have the rights to vote in certain major changes onto the company, such as consolidation, or dissolution. Therefore every single common shareholders will have a single vote during the participation in the company’s annual general meeting too.

In the cycle of the company, the shareholders will choose the board of directors by voting, the board of directors will then choose the suitable individual to become the manager who going to run out the company’s business as the board of directors will just meet each other once in a blue moon. But there are problems that arise due to the happened of the conflict of interest between the ultimate owner (shareholder) and the agent (manager / CEO).

The common stock from most of the large company, can be sold and bought freely in the market on one or more than one stock exchanges. If the company is closely held, then the company’s stock can be say that is not liquid.

In the residual claim and limited liability, the common shareholders, who are the part of the owner on the company, are entitled to the profits, after the company has cleared up the liabilities of the company. The profits will then distributed to all the shareholders eventually, such as by dividends. The shareholders is the residual owners of the firm, where they was the last person to receive the income and the residual value from the company. Although the shareholders is the last person to get back their money, but they still have their own limits where they do not bear any responsibility on the company’s financial such as liabilities than what they have invested on the company buy buying their common stock. Therefore, the most that the shareholder will lose is just their initial deposits for investment.

Preferred Stock

A preferred stock is a hybrid stock on the equity and debt. To make it more clear, a preferred stock can be say that it almost like the bond, as the bond will give out the

fixed dividend to the bond holder each year, and for preferred stock, it just like a bond that have an infinite-maturity. When the preferred stockholder existed in the company, the preferred stockholder will have the priority to get their dividend first than the common shareholder. Once the company has not pay out all the outstanding fixed dividend to the preferred shareholder, the common shareholder will not get their dividend yet. When comes to the situation, where the company has to liquidated, the preferred shareholder will get their priority in the terms of assets claim than the common shareholders. Unlike the common shareholders, the preferred shareholder will get their dividend as predetermined, while the common shareholders will depend on the company’s performance.

Besides that, a preferred shareholders does not have any rights to vote in any board director’s election. Compare to the common shareholders, the common shareholders can still vote for the election of the board directors. There are few types of the preferred shares, such as cumulative, participating, redeemable, and convertible. Therefore, the ranking of preferred shareholder is ahead than the common shareholder.

QUESTION 4

Inflation

Inflation is a term that can be defined as the most important term in the investment as it will determine all the real rate of the returns that you will get from all your investment. Therefore, a company profit can be affected by the inflation, for example, if the inflation is low, the input cost will also become low, by the way, the rate of the decreases depends on the cost that the company is able to pass to its consumers.

The market will suffer more if the interest rate is cheaper investment on vehicle than the stocks. When this happen, the investors will then sell off all their stocks and invest in the bonds instead.

GDP (Gross Domestic Product)

GDP is a measurement of the total value of the services and goods that produced in a respective country. The differences can be seen when it compared with the previous year’s reading, the differences that shown can shows clearly that whether the economy of the country is growing or contracting. Therefore, the GDP will normally published by quarterly.

Labour Market

In the labour market, the unemployment will keep on increase as the economic is meltdown, whereby the company will stop the recruitment and reducing the capacity of the workers. And this will affect the country’s economic status.

Bottom Line

From all the information that you have collect, you will be able to know more about the current status of the country as you have already understand it. For example, when the market have already slowed down, that is not necessary that it is a bad sign as this might be a golden opportunity for you to invest in the good stocks with a good buying prices.