BBMF2093-CORPORATE FINANCEBACHELOR OF BUSINESS (HONS) FINANCE & INVESTMENTYEAR 2 SEMESTER 3COURSEWORK

CHEW CHIN LAP13WBR11861NICHOLAS TAN PENGXI13WBR10039VICTOR HO KAI SHENG13WBR12255YANG QI ONN13WBR10443

TUTORIAL GROUP:RFI 4DAY:FRIDAYTIME:11.00AMDATE OF SUBMISSION :4 JULY 2014

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School of Business StudiesPlagiarism Statement

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Group Member Appraisal Form This basis of this evaluation is your group members commitment to completing the assignment and to their regard for other members of the group. It should be based on the contribution given by each member and his or her involvement in this assignment. Group members should be appraised using the following basis:100% Group member attended all group meetings or if unable to attend, contacted the group in advance and came to an alternative arrangement that the majority of group members were happy with. Group member contributed to group discussion. Group member always offered to help or volunteered for tasks. Group member had assigned tasks completed on time.

50% Group member missed group meetings without making alternative arrangements with other group members. Group member assigned tasks were only partly completed or poorly completed. Group member did not contributed to the group effort or volunteer for tasks.

0% Group member attended few meetings and made no contribution to the assignment.

Name of student: ID:Instructions: Place the name of each of the members in your group in the space provided below. Appraise each of the members in your group by circling one of the totals shown below (i.e. 100%, 50% or 0%)Group Member

1. 100% 50% 0%

2. 100% 50% 0%

3. 100% 50% 0%

4. 100% 50% 0%

5. 100% 50% 0%

6. 100% 50% 0%

Note: Failure to submit a Group Member Appraisal Form will result in a ZERO appraisal being recorded against your name.

Group Member Appraisal Form This basis of this evaluation is your group members commitment to completing the assignment and to their regard for other members of the group. It should be based on the contribution given by each member and his or her involvement in this assignment. Group members should be appraised using the following basis:100% Group member attended all group meetings or if unable to attend, contacted the group in advance and came to an alternative arrangement that the majority of group members were happy with. Group member contributed to group discussion. Group member always offered to help or volunteered for tasks. Group member had assigned tasks completed on time.

50% Group member missed group meetings without making alternative arrangements with other group members. Group member assigned tasks were only partly completed or poorly completed. Group member did not contributed to the group effort or volunteer for tasks.

0% Group member attended few meetings and made no contribution to the assignment.

Name of student: ID:Instructions: Place the name of each of the members in your group in the space provided below. Appraise each of the members in your group by circling one of the totals shown below (i.e. 100%, 50% or 0%)Group Member

1. 100% 50% 0%

2. 100% 50% 0%

3. 100% 50% 0%

4. 100% 50% 0%

5. 100% 50% 0%

6. 100% 50% 0%

Note: Failure to submit a Group Member Appraisal Form will result in a ZERO appraisal being recorded against your name.

Group Member Appraisal Form This basis of this evaluation is your group members commitment to completing the assignment and to their regard for other members of the group. It should be based on the contribution given by each member and his or her involvement in this assignment. Group members should be appraised using the following basis:100% Group member attended all group meetings or if unable to attend, contacted the group in advance and came to an alternative arrangement that the majority of group members were happy with. Group member contributed to group discussion. Group member always offered to help or volunteered for tasks. Group member had assigned tasks completed on time.

50% Group member missed group meetings without making alternative arrangements with other group members. Group member assigned tasks were only partly completed or poorly completed. Group member did not contributed to the group effort or volunteer for tasks.

0% Group member attended few meetings and made no contribution to the assignment.

Name of student: ID:Instructions: Place the name of each of the members in your group in the space provided below. Appraise each of the members in your group by circling one of the totals shown below (i.e. 100%, 50% or 0%)Group Member

1. 100% 50% 0%

2. 100% 50% 0%

3. 100% 50% 0%

4. 100% 50% 0%

5. 100% 50% 0%

6. 100% 50% 0%

Note: Failure to submit a Group Member Appraisal Form will result in a ZERO appraisal being recorded against your name.

Group Member Appraisal Form This basis of this evaluation is your group members commitment to completing the assignment and to their regard for other members of the group. It should be based on the contribution given by each member and his or her involvement in this assignment. Group members should be appraised using the following basis:100% Group member attended all group meetings or if unable to attend, contacted the group in advance and came to an alternative arrangement that the majority of group members were happy with. Group member contributed to group discussion. Group member always offered to help or volunteered for tasks. Group member had assigned tasks completed on time.

50% Group member missed group meetings without making alternative arrangements with other group members. Group member assigned tasks were only partly completed or poorly completed. Group member did not contributed to the group effort or volunteer for tasks.

0% Group member attended few meetings and made no contribution to the assignment.

Name of student: ID:Instructions: Place the name of each of the members in your group in the space provided below. Appraise each of the members in your group by circling one of the totals shown below (i.e. 100%, 50% or 0%)Group Member

1. 100% 50% 0%

2. 100% 50% 0%

3. 100% 50% 0%

4. 100% 50% 0%

5. 100% 50% 0%

6. 100% 50% 0%

Note: Failure to submit a Group Member Appraisal Form will result in a ZERO appraisal being recorded against your name.

Assessment Criteria For Group Coursework ( 100 marks) 25% weightage

1Sources of financing25

2Capital structure, gearing, liquidity,risk of bankruptcy40

3Recommendations to improve sources of financing25

4Report presentation including grammar, inclusion of reference materials as appendices and ability to present in a clear manner.

10

Total100

TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION1.1 Company Profile91.2 Company Business Activity9-101.3 Corporate Structure10-141.4 Company Marketing Strategies14-151.5 Expected Return of Ordinary Shareholders [Capital Asset Pricing Model]15-16CHAPTER 2: CONTENT2.1 Sources of Finance17-202.2 Capital Structure20-282.3 Recommendations for alternative28-30CHAPTER 3: CONCLUSION31REFERENCES32-33APPENDIX34-38

PART B: INDIVIDUAL COURSEWORK39-67

CHAPTER 1: INTRODUCTION

1.1 Company ProfileMBM Resources BHD (MBMR 5983) is a company under trading and service industry in Bursa Malaysia. MBMR has grown over the years through acquisitions and organic expansion. One of the first significant achievement of the company is the secure of exclusive distributorship of Daihatsu motor vehicles in 1980 under Daihatsu (Malaysia) Sdn. Bhd. (DMSB). In 1994, MBMR was incorporated as an investment holding company under the Med-Bumikar Mara Sdn. Bhd. Group of Companies (the MBM Group). MBMR was successfully listed on the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia Securities Berhad) on 9 February 1995. The next significant milestone for MBMR Group would be the acquisition of Federal Auto Holdings Berhad (Federal Auto). Federal Auto was an established Volvo cars distributor until the year 2000 when it remained a leading dealer. Today, it is also the leading dealer for international reputable brands including Volkswagen and Mitsubishi. MBMR also expanded into automotive parts manufacturing with the acquisition of wheel manufacturer, Oriental Metal Industries (M) Sdn. Bhd. (OMI); and safety and NVH products manufacturer, Autoliv Hirotako Sdn. Bhd. and Hirotako Acoustics Sdn. Bhd., subsidiaries of Hirotako Holdings Berhad.The groups head office located at No. 1-6, The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur. The Group now has a combined total of 46 branches around Malaysia that enables MBMR to reach its customers more effectively.

1.2 Company Business ActivityWith diverse investments in the automotive industry, the automotive group has made its name in the local market. MBMRs businesses are conducted in Malaysia only. MBMR has two core businesses, which are automotive distribution and retailing; and automotive parts manufacturing. However, for the purpose of diversification, MBMR does have some minor business in property development. Through its subsidiaries, the local company currently represents some of the biggest international brands in Malaysia, including commercial vehicle brands Daihatsu and Hino; passenger car brands Perodua, Volvo, Volkswagen and Mitsubishi; and sports tuning brands, ABT and Heico Sportiv. The motor trading business of MBMR includes light trucks to medium and heavy duty trucks and buses in the commercial vehicle market, and from compact entry level cars to luxury cars in the passenger vehicle market. On the other hand, MBMR's automotive parts manufacturing division currently produces steel wheels, assembles wheel modules, builds bodies for commercial vehicles and manufactures automotive safety equipment such as airbag modules, seat belts, steering wheels, noise and heat reduction materials and insulator parts. Meanwhile, MBMR also provides after sales service, body and paint, providing of spare parts and accessories as well as customer services. The Companys subsidiaries include Hirotako Holdings Berhad, Oriental Metal Industries (M) Sdn. Bhd. (OMI), Daihatsu (Malaysia) Sdn. Bhd. and Federal Auto Holdings Berhad. There are two subsidiary companies of MBMR involves in property development, which are Inai Benua Sdb. Bhd. and MBMR Properties Sdb. Bhd. Besides that, MBMR has associates that cooperate with it in daily business, such as Hino Motors Manufacturing (Malaysia) Sdn Bhd., Hino Motors Sales (Malaysia) Sdn. Bhd., and Perusahaan Otomobil Kedua Sdn, Bhd. (Perodua).

1.3 Corporate Structure1.3.1 Board of DirectorsThe Board of Directors (Board) of MBM Resources Bhd (MBMR) is considered the key of success to the company's business and is committed to enforce the principles of good governance in all their business dealings in respect of its shareholders and stakeholders. MBMR considers that its complement of Non-Executive Directors provide for an effective Board with a mix of industry-specific knowledge and commercial experience. This balance enables the Board to provide clear and effective leadership to the Company and bring informed and independent judgement to many aspects of the Companys strategy and performance so as to ensure that the Company maintains the highest standards of conduct and integrity.Currently, the Board has seven members, consists of three non-independent non-executive directors, two independent non-executive directors, one group managing director and one executive director. Y. Bhg. Dato' Abdul Rahim Bin Abdul Halim serves as Non-Independent Non-Executive Chairman of the Board at MBM Resources Bhd. A qualified economist, Y. Bhg. Dato Abdul Rahim was MBM Resources Berhads (MBMR) Managing Director until 28 February 2006. He is currently the Chairman of MBMR. He held several senior positions in the Ministry of International Trade and Industry (MITI) and Daihatsu (Malaysia) Sdn. Bhd. (DMSB) prior to his appointment to MBMRs Board on 17 December 1993. Dato Abdul Rahim has experience in the motor vehicle industry and is presently on the Boards of Rubberex Corporation (M) Berhad, Central Cables Berhad and Ewein Berhad as well as several other private companies. He holds a Bachelor of Economics (Honours) degree from the University of Malaya. He is the Chairman of the Boards of the following companies Oriental Metal Industries (M) Sdn. Bhd. (OMI) and Hino Motors (Malaysia) Sdn. Bhd. (HMMSB), and a Board member of Perusahaan Otomobil Kedua Sdn. Bhd. (Perodua).Mr. Looi Kok Loon serves as Managing Director and Executive Director of MBM Resources Bhd. He was appointed to the Board on May 18, 2001 and subsequently Managing Director since March 1, 2006. He had previously worked for a foreign investment bank. Mr. Looi holds a Bachelors degree in Government and Economics from Brunel University and a Masters degree in Management from the University of Kent, United Kingdom. He represents MBMR on the Boards of the following companies Perodua, HMMSB, DMSB, Federal Auto Holdings Berhad (FAHB) and OMI.Encik Aqil Bin Ahmad Azizuddin serves as Non-Independent Non-Executive Director of MBM Resources Bhd since August 17, 2010. He was Company's Director from May 18, 2001 to 2002 and Executive Director from 2002 to August 17, 2010. He holds a Bachelor of Science in Business Economics and an Associate degree in Commercial Graphics from Southern Illinois University, the United States of America. He has served as Chairman of Federal Auto Holdings Bhd, Chairman in Daihatsu (M) Sdn Bhd, and Director, Marketing Manager and Managing Director in Daihatsu (M) Sdn Bhd. He also holds directorship in Awesome Power Sdn Bhd, Cendera Azizuddin Sdn Bhd, Clearwater Sanctuary Golf Resort Sdn Bhd, Kampung Baru Inn Sdn Bhd, Perusahaan Otomobil Kedua Sdn Bhd, PERODUA Sales Sdn Bhd, Pembinaan Teknikhas Sdn Bhd, Precisionag Sdn Bhd, Hartamuda Sdn Bhd, Bizworth Sdn Bhd, Galian Lembah Kinta Sdn Bhd, GMMI Sdn Bhd, MBM Energy Sdn Bhd and Arah Seraya Sdn Bhd. He serves as member of the Audit Committe of the Company with effect on January 1, 2011.

Diagram 1.1: Directors of MBMR

1.3.2 Management TeamMBM Resources Bhd (MBMR) Management Team is a sub-entity from the Board of Directors. The roles of Management Team are to guide the development and business of the company and the Managing Director is responsible for the day-to-day running of the businesses of the Group and to develop and implement strategies. The Management Team consists of five members.

Diagram 1.2: Management Team of MBMR

1.3.3 Board CharterThe Board Charter will assist the Companys stakeholders to better understand the objectives of the Board, the Companys organisation structure and the manner in which the Board exercises its authority and discharges and allocates responsibilities in managing the affairs of the Company.The Board is responsible for undertaking the business and affairs ofMBM Resources Bhd and its subsidiaries (collectively and each individually the Company) in the interest of its shareholders. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks.

1.4 Company Marketing Strategies1.4.1 Multi-brand StrategyWith the aim to be one of the leading and most complete automotive groups in Malaysia and the region, MBMR uses the multi-brand strategy which allows the group to saturate the automotive market by occupying greater shelf space and filling almost all price and quality gaps. MBMR is the leader in every market segment it competes in, with products that range from light, medium and heavy duty trucks and buses to entry-level compact cars and luxury sports utility vehicles. The examples include commercial vehicle brands Daihatsu and Hino; passenger car brands Perodua, Volvo, Volkswagen and Mitsubishi. This helps to secure greater shelf space with little remaining for rival products.1.4.2 A Diverse Network of Products and Services.The MBMR group do not just position themselves merely as automotive distributors. On the contrary, MBMR aims to achieve capabilities that include manufacturing and assembly, distribution, retail and dealerships, parts and accessories, body and paint repair and customer services. Therefore, the group has been invested in sales and aftersales service network and automotive parts manufacturing business, and strategic acquisitions. The investments in expanding network expansion not only increased MBMRs capacity and geographical reach but also allowed it to leverage on the growing number of cars sold to boost its recurring income contribution from the lucrative aftersales business. For example, major investments of MBMR in manufacturing such as the alloy wheel plant in Rawang and the joint-venture plant with Hino Motors Ltd in Sendayan may contribute to the group by helping the group to achieve greater financial stability when expansion costs are fully absorbed.

1.5 Expected Return of Ordinary Shareholders [Capital Asset Pricing Model]The current stock price for MBM Resources Bhd is RM 3.060, beta of MBMR is 0.37 from reuters[footnoteRef:2](Refer to appendix 1), risk-free rate is 3.04% based on 3 month Malaysia Treasury Bill[footnoteRef:3](Refer to appendix 2) and the market return is 14% based on the year to year total return performance of FTSE Bursa Malaysia KLCI[footnoteRef:4](Refer to appendix 3). An investor always looks for a rate of return that compensates him for taking on risk of the securities. So, in order to meet the expectation of investors, Capital Asset Pricing Model (CAPM) plays a very important role because it describes the relationship between risk and expected return and is used in the pricing of risky securities in order to fulfill the requirements of investors between their return and risk tolerance. The expected return can be calculated using formula: [2: http://www.reuters.com/finance/stocks/overview?symbol=MBMR.KL] [3: http://www.bnm.gov.my/index.php?tpl=489&sdate=2014-07-02&lang=] [4: file:///C:/Users/Lap/Downloads/FBMKLCI_20140630.pdf]

R= 3.04 + 0.37(14 - 3.04) = 7.0952%The required rate of return from MBM Resourcing Bhd share is 7.0952%. The beta of MBMR is lower than the market beta of 1. This indicates the company will be less volatile than the market. As the total market return will be as high as 14% while the required return of the shareholders will only be 7.0952%. The stock is considers undervalued in the SML as we can gain higher return with same risk apply.

CHAPTER 2: CONTENT

2.1 Sources of Finance2.1.1 Equity Financing

Diagram 2.1: Sources of Finance2.1.1.1 Ordinary sharesIssuing shares of its stock and receives money in return is one of the sources of financing in MBMR. The shareholders of MBMR represent equity ownership in the company and entitle the owner to a vote in matters put before shareholders in proportion to their percentage ownership in the company. They are entitled to a dividend only after a certain date or if profits rise above a certain amount. The companies will first issues shares through the primary market and the shares will be transacted in secondary market. A total of 390,637,453 (Refer to appendix 4)[footnoteRef:5] ordinary shares with par value of RM1 have been issued to the shareholders. [5: http://www.mbmr.com.my/Automotive/Investors/Shareholder-Information/Share-Capital/]

2.1.1.2 Right issue and warrantMBMR issue rights share and warrant as a way of raising new share capital. The warrant issued by MBMR will entitled the holder of the warrants to subscribe for a new ordinary share in the company. It can be exercised at any time within a period of 5 years commencing from the date of issue of the warrants which is 21 June 2012 but the holders of the warrants will not be entitled to any voting rights or to participate in any distribution and/or offer of further securities in the company. MBMR have issued 73,165,836 right issue warrants together with listing and quotation for the 73,165,836 right shares on the Main Market of Bursa Malaysia and there are 73,300 warrants have been exercised at the fixed price of RM3.20 (refer to appendix 5).Lastly, the warrants shall be transferable in the manner provided under the Securities Industry Act, 1991 and the rules of Bursa Malaysia Depository Sdn. Bhd.[footnoteRef:6] [6: Financial Report 2013, pg139 &140, note 32]

2.1.2 Debt FinancingDebt financing comes in the form of a loan. Generally, its acquired either through a commercial bank or through a loan program provided by an organization. The long term debt financing used by MBMR are term loan and bank overdraft.2.1.2.1 Term LoansMBMR is having a term loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. The term loan have three maturity which are more than 1 year and less than 2 years, more than 2 years and less than 5 years and more than 5 years. The average effective interest rates per annum of the following are 5.3% in the group and 5.8% for the company (Refer to appendix 6). The loan amount has decrease from RM402, 886,000 in year 2012 to RM369, 410, 000 in year 2013(Refer to appendix 7).[footnoteRef:7] MBMR also used short term financing such as bankers acceptance and revolving credits. [7: Financial Report 2013, pg 142 & 143, note 34]

2.1.2.2 Bank OverdraftMBMR used bank overdraft as one of the financing sources as well. It is an extension of credit from bank when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. The average effective interest rates per annum of the following are 6.5% in the group (Refer to appendix 3).2.1.2.3 Bankers Acceptance Bankers acceptances are issued by MBMR as part of a commercial transaction. These instruments are similar to T-Bills and are frequently used in money market funds. Bankers acceptances are traded at a discount from face value on the secondary market, which can be an advantage because the banker's acceptance does not need to be held until maturity. Bankers acceptances are regularly used financial instruments in international trade. The average effective interest rates per annum of the following are 3.7% in the year 2013 for the group (Refer to appendix 6).2.1.2.4 Revolving CreditsRevolving credit is a line of credit where MBMR pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customer's current cash flow needs. It can be taken out by MBMR. Along with the commitment fee there are also interest expenses for corporate borrowers and carry forward charges for consumer accounts.The average effective interest rates per annum of the following are 4.5% in the year 2013 for the group (Refer to appendix 6).

2.1.3 Hired Purchase Hired purchased is another financing tool used by MBMR. It is a form of installment credit and it is similar to leasing, with the exception that ownership of the goods passes to the hire purchase customer on payment of the final credit installment, whereas a lessee never becomes the owner of the goods. Hire purchase agreements usually involve a finance house. The finance house will always insist that the hirer should pay a deposit towards the purchase price. MBMR uses hire purchase as a source of finance and hire purchase finance from a finance house in order to purchase the fixed asset such as company vehicles, plant and machinery, office equipment and farming machinery. The present value of hire purchase payables is RM40,000 which RM17,000 will be due within one year while another RM23,000 will be due in the second to fifth years inclusive. The effective interest rates for 31 December 2012 ranges from 6.54% to 7.1% per annum. Interest rates are fixed at the inception of the hire purchase arrangements (Refer to appendix 8). [footnoteRef:8] [8: Financial Report 2013, pg 146, note 36]

2.2 Capital Structure2.2.1 EquityYear2013RMYear2012RMYear2011RMYear2010RMYear2009RM

Authorized :Ordinary share of RM1 each500,000,000500,000,000500,000,000500,000,000500,000,000

Issued and fully paid as 1 January390,637,000242,943,000242,677,000242,073,000242,073,000

Bonus share-73,165,000---

Right issue with warrants-73,166,000---

Exercise of warrants74,0002,000---

Exercise of ESOS-1,361,000266,000604,000-

Issued and fully paid as 31 dec390,711,000390,637,000242,943,000242,677,000242,073,000

Unpaid share capital109,289,000109,363,000257,057,000257,323,000257,927,000

Market value390,711,000 x 3.21 = 1,254,1825,310390,637,000 x 3.21 = 1,253,944,770242,943,000 x 3.18 = 772,558,740242,677,000 x 3.34 = 810,541,180242,073,000 x 2.59 = 626,969,070

Table2.1 Share Capital

RMPERCENTAGE %

Issued and fully paid390,637,000

Exercise of warrants74,000

Unpaid share capital109,289,000

Table 2.2 Percentage of Share Capital

2.2.2 Debt

Chart 2.1 Long Term and Short Team DebtsTERMRM000PERCENTAGE %

Long Term478,186

Short TermBanker Acceptance86,501

Revolving Credits25,000

Bank Overdraft748

Table 2.3 Percentage of Long Term and Short Team Debts

2.2.3 Gearing RatioHow can the gearing ratio be evaluated? A business with a gearing ratio of more than 50% is traditionally said to be highly geared. A business with gearing of less than 25% is traditionally described as having low gearing Something between 25% - 50% would be considered normal for a well-established business which is happy to finance its activities using debt.Debt to equity ratio =

YearDebt to equity ratio

2009 = 0.029 = 2.9%

2010 = 0.026 = 2.6%

2011 = 0.43 = 43%

2012 = 0.25 = 25%

2013 = 0.26 = 26%

Table 2.4 Debt to equity ratio

Debt to capital ratio = formula 2.2YearDebt to capital ratio

2009 = 0.028 = 2.8%

2010 = 0.025 = 2.5%

2011 = 0.30 = 30%

2012 = 0.20 = 20%

2013 = 0.20 = 20%

Table 2.5 debt to capital ratio

Graph 2.1 Debt to capital ratio vs Debt to equity ratioThegearing ratiois the proportion of a company's debt to its equity. The gearing ratio is also concerned with liquidity. In theory, higher the gearing ratio means higher the risk of the business. The graph is show about the debt to equity ratio and debt to capital ratio from the year of 2009 to year of 2013. Both ratio are move in the same direction. From the year 2009 to 2010, there is slightly decrease in the debt to equity ratio from 2.9% to 2.6%, which is a good sign for the MBM resource. However, the debt to equity is highly increase from the year 2010 to 2011, which are 2.6% to 43%, which mean the MBM resource is borrowing more long term loan to finance their business in that year and it will indicate MBM resource facing the high risk than the previous year. In year 2012, the debt to equity ratio has decrease from 43% to 25% due to MBM resource has increasing their share capital by issuing bonus share to their shareholder. In year 2013, there has increase slightly from 25% to 26%, it a quite good for MBM resource because not much change in the debt to equity ratio and may be they have indicate a conservative financial management.Graph 2.1 shows the debt to equity ratio which measure a companys financial leverage. The debt-to-capital ratio gives us an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. In year the year of 2009 and 2010, the debt to capital ratio remains very low which are 2.8% and 2.5% respectively but in the year of 2011, the ratio increases sharply to 30%. In this year, MBM Resources Berhad (MBMR) was investing RM250 million in capital expenditure over the next five years in an aggressive expansion plan to transform the group into one of the key automotive players in Malaysia and the region.The non-equity capital expenditure will primarily be utilised to expand its manufacturing infrastructure, enhance its nationwide retail and service network, and realise the value of its prime assets. In line with its aspiration of becoming a complete automotive group, MBMR is investing in new manufacturing facilities to cater for product line extensions and equip itself with vehicle assembly capabilities. It is also enhancing its substantial motor retail and service network across the country with new 3S and one-stop body and paint centres to cater to the needs of its growing customer base.[footnoteRef:9] (Refer to appendix 9). This is why the debt to capital ratio is so high in year 2011 as MBMR was using non equity capital expenditure to expand their business. In year 2012 and 2013, the debt to capital ratio is 20% for both years dropping from 30% in year 2011. This has proved the sudden increase of debt to capital ratio in year 2011 was because of expansion of its businesses. [9: http://www.mbmr.com.my/Detail/News-and-Media/Press-Releases/RM250-Million-Expansion-Plan-To-Transform-MBM-Resources-Berhad-Into-Major-Automotive-Group/]

2.2.4 Liquidity RatioCurrent ratio =

YearCurrent ratio

2009 = 3.89

2010 = 1.47

2011 = 2.05

2012 = 1.7

2013 = 2.09

Table 2.6 current ratio

Quick ratio = YearQuick ratio

2009 = 2.58

2010 = 0.91

2011 = 1.34

2012 = 1.09

2013 = 1.48

Table 2.7 quick ratio

Graph 2.2 current ratio versus quick ratioThe graph shows about the current ratio and quick ratio of MBM resource from the year 2009 to 2013. The different between current ratio and quick ratio are the quick ratio is excludes the inventory. Therefore it will be more precise than the current ratio. Overall of the performance of the current and quick ratio is considered well, because almost all ratios are at healthy ratio. In general, the healthy rate for current ratio is 2 and the quick ratio is 1. So for the year of 2009, 2011 and 2013 of the current ratios are healthy which the ratios are higher than 2 which are 3.89, 2.05 and 2.09 respectively. For the quick ratio, only year 2010 is not at the healthy ratio, other years are consider have a healthy quick ratio.In year 2009, the current ratio is the highest which is 3.89 compare to other year current ratio. However, high current ratio may not always is a good signal. Because a company with high current ratio will unable to pay its current liabilities if a large portion of its current assets consists of slow moving or obsolete inventories.From year 2010 to 2013, the current ratio move up and down which are 1.47, 2.05, 1.7 and 2.09 respectively. It show that for year 2010 and 2012, MBM recourse is tend to less liquidity and maybe is they increasing in the short-term debt, and there are no much increase in current asset. For year 2011 and 2012, MBM resource is more liquidity and able to meet the short term debt repayment.For the quick ratio, the movement is same as the current ratio. There is a rapid decline from year 2009 to 2010 and rise and fall from year 2010 to 2013. Based on the quick ratio, the lowest quick ratio is 0.91 which mean MBM resource short term liability are more than current asset which is the most liquid assets that easily convert to cash. On the other hand, with a low quick ratio may have fast moving inventory. Overall of the quick ratio, it show that MBM resource has ability to pay short term debts immediately because their average quick ratio is above 1 and they have a strong liquidity position However, higher quick ratio does not mean that a company has a strong liquidity position because a company may have high quick ratio but slow paying debtors.

2.3 Recommendations for alternative2.3.1 BondOur group first recommendation of financing sources to MBM Resources Bhd is bond. Bond is a debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds. The reason why Issuing bond is more popular than issuing to stock in Malaysia is because interest on bonds and other debt is deductible on the corporation's income tax return but the dividends on stock are not deductible on the income tax return. A second advantage of financing assets with bonds instead of stock is that the ownership interest in the corporation will not be diluted by adding more owners. Bondholders and other lenders are not owners of the assets or of the corporation. Therefore, all of the gain in the value of the assets belongs to the stockholders. The bondholders will receive only the agreed upon interest. This is related to the concept of leverage or trading on equity. By issuing debt, the corporation gets to control a large asset by using other people's money instead of its own. If the asset ends up being very profitable, all of its earnings minus the interest will enhance the owners' financial position. In addition, the debt to equity ratio is 26% (calculated in gearing ratio) which consider low debt company. Therefore, it is better to issue bond compared to other debt financing and shares. Moreover, bond has a lot of feature such as convertible and callable bond. Convertible bond is one wherethe holder can convert the bond into common stock at a future time while the callable bond is one where the issuing company is likely to retire the bonds before maturity if the bonds are paying 9% interest while the market rate of interest is 6%.2.3.2 FactoringOther than bond, factoring is another source of financing MBMR should use. Factoring is a financial transaction in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. Factoring is a good short term financing tool as it gets cash quickly and don't have to collect the debt. However, you lose some of the value of the invoice. The factoring company gets the debt and has to collect it. They make a profit by paying you less cash than the face value of the invoice. Factoring can be used to get money quickly, avoid the hassle of collecting bad debt, smooth your cash flow and borrow money, secured by your debt. 2.3.3 Retained EarningsMBMR consider a stable company which paid out dividend twice every year. This shows that MBMR choose to pay out dividend with most of its retained earnings. We suggest that MBMR should used retained earnings as their internal source of financing. The amount of earnings retained within the business has a direct impact on the amount of dividends. Profit re-invested as retained earnings is profit that could have been paid as a dividend. The major reason for using retained earnings is to finance new investments, rather than to pay higher dividends and then raise new equity for the new investments. The management of many companies believes that retained earnings are funds which do not cost anything, although this is not true. However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash. Besides, the dividend policy of the company is in practice determined by the directors. From their standpoint, retained earnings are an attractive source of finance because investment projects can be undertaken without involving either the shareholders or any outsiders. In addition, the use of retained earnings as opposed to new shares or debentures avoids issue costs and the use of retained earnings avoids the possibility of a change in control resulting from an issue of new shares.Another factor that may be of importance is the financial and taxation position of the company's shareholders. If, for example, because of taxation considerations, they would rather make a capital profit (which will only be taxed when shares are sold) than receive current income, thus finance through retained earnings would be preferred to other methods. However, a company must sometimes restrict its self-financing through retained profits because shareholders should be paid a reasonable dividend, in line with realistic expectations, even if the directors would rather keep the funds for re-investing. At the same time, a company that is looking for extra funds will not be expected by investors such as banks to pay neither generous dividends, nor over-generous salaries to owner-directors.

CHAPTER 3: CONCLUSIONMBM Resources BHD (MBMR 5983) is a company under trading and service industry in Bursa Malaysia. The company was publicly listed in 1994 and has grown over the years by leaps and bounds. The core business of MBMR lies in the automotive industry. With its subsidiaries and associates, MBMR is able to be a leading dealer in the industry.The two core businesses of MBMR are automotive distribution and retailing; and automotive parts manufacturing. MBMR also diversified its investment in property development. Brands under MBMR included Perodua, Daihatsu, Hino, Volvo, Volkswagen and Mitsubishi. The Chairman of MBMR is Y. Bhg. Dato Abdul Rahim while the managing director is Mr. Looi Kok Loon. Both of them play important roles in the development and success of MBMR. The marketing strategies used by MBMR included multi-brand strategy which helps MBMR to saturate the market, and also a diverse network of products and services that enables MBMR to be the most complete automotive groups in Malaysia. The current stock price for MBM Resources Bhd is RM 3.060, beta of MBMR is 0.37 from reuters, risk-free rate is 3.04% based on 3 month Malaysia Treasury Bill and the market return is 14% based on the year to year total return performance of FTSE Bursa Malaysia KLCI. MBMR has used several sources of finance to carry out its business. The first source is equity financing. Under equity financing, MBMR issued ordinary shares, right issues and warrant to raise capital. The second source is debt financing. The long term debt financing used by MBMR are term loan and bank overdraft while short term financing used are bankers acceptance and revolving credits. The third source of financing is hired purchase.

REFERENCESBNM Government Securities Yield. 2014.BNM Government Securities Yield. [ONLINE] Available at:http://www.bnm.gov.my/index.php?tpl=489&sdate=2014-07-02&lang=. [Accessed 20 June 2014].Futures Definition | Investopedia. 2014.Futures Definition | Investopedia. [ONLINE] Available at:http://www.investopedia.com/terms/f/futures.asp. [Accessed 20 June 2014Malaysian Bonds Market Information, Malaysia Bonds, Islamic Bonds, Ringgit Bonds, Asian Bonds, Bond Info Hub. 2014.Malaysian Bonds Market Information, Malaysia Bonds, Islamic Bonds, Ringgit Bonds, Asian Bonds,Bond Info Hub.[ONLINE] Available at:http://bondinfo.bnm.gov.my/portal/server.pt?open=514&objID=27280&parentname=CommunityPage&parentid=1&mode=2&in_hi_userid=22874&cached=true. [Accessed 20 June 2014]MBM Resource Berhad :: Share Capital. 2014.MBM Resource Berhad :: Share Capital. [ONLINE] Available at:http://www.mbmr.com.my/Automotive/Investors/Shareholder-Information/Share-Capital/. [Accessed 20 June 2014].MBM Resources Bhd (MBMR.KL) Quote| Reuters.com. 2014.MBM Resources Bhd (MBMR.KL) Quote| Reuters.com. [ONLINE] Available at:http://www.reuters.com/finance/stocks/overview?symbol=MBMR.KL. [Accessed 20 June 2014].Options Defined - NASDAQ.com. 2014.Options Defined - NASDAQ.com. [ONLINE] Available at:http://www.nasdaq.com/investing/options-guide/definition-of-options.aspx. [Accessed 20 June 2014].Primary vs. Secondary Market. 2014.Primary vs. Secondary Market. [ONLINE] Available at:http://finance.mapsofworld.com/capital-market/primary-vs-secondary.html. [Accessed 20 June 2014].Sukuk Definition | Investopedia. 2014.Sukuk Definition | Investopedia. [ONLINE] Available at:http://www.investopedia.com/terms/s/sukuk.asp. [Accessed 20 June 2014]What is U.S. Treasury Bond? definition and meaning. 2014.What is U.S. Treasury Bond? definition and meaning. [ONLINE] Available at:http://www.investorwords.com/5198/US_Treasury_Bond.html. [Accessed 20 June 2014]

APPENDIXAppendix 1(Beta of MBMR)

Sources: Reuters

Appendix 2 (Risk free rate)

Sources: BNM

Appendix 3 (FTSE Bursa Malaysia KLCI total return)

Sources: FTSE

Appendix 4(Analysis of Shareholdings as at 30 April 2013)

Sources: MBM Resources Bhd

Appendix 5 (share capital-warrants)

Sources: Financial Report 2013, pg 139, note 32

Appendix 6 (Average effective rate per annum of the borrowings)

Sources: Financial Report. pg 143, note 34

Appendix 7 (total borrowing of term loan)

Appendix 8

Sources: Financial Report 2013, pg 146, note 36

Appendix 9 (press lease on 11 Jun 2011

PART B: INDIVIDUAL COURSEWORKCHEW CHIN LAP13WBR11861Development of markets25

Products offered25

NICHOLAS TAN PENGXI13WBR10039Development of markets25

Products offered25

VICTOR HO KAI SHENG13WBR12255Development of markets25

Products offered25

YONG QI ONN13WBR10443Development of markets25

Products offered25

Chew Chin Lap13WBR11861Chapter 1 Development of Capital Market in Malaysia The capital market refers to markets for medium- to long-term financial assets. For our purposes the capital market encompasses corporate stocks, public and private debt securities with maturity exceeding one year, and shares with no fixed maturity period which are traded in the stock market, the government bond market, and the market for private debt securities. The domestic currency (ringgit) bond market has expanded since the financial crisis, supplying some RM34.4 billion in 2000, about 85 percent, of the total net funds raised (Table 1). Low interest rates, financing for expansion, and corporate debt restructuring all contributed to the increase in public and private debt securities. The total value of outstanding bonds reached RM242 billion in 2000 compared to RM202.5 billion in 1999, with PDS comprising 58 percent of outstanding bonds in 2000. Launched ten years ago, the first Capital Market Masterplan (CMP1) guided the development of the Malaysian capital market for the period of 2001 to 2010. CMP1 aimed to build a capital market that would be competitive in meeting the countrys capital and investment needs and support long-term nation-building efforts. Since 2000, the growth of the Malaysian capital market had outpaced the economy, with the size of the capital market expanding from RM718 billion to RM2 trillion or at an annual compounded growth rate of 11%. This strong growth was achieved through rapid industry expansion and strong regulatory oversight that underpinned investor confidence in the capital market. From a capital market comprising mainly equities and government debt securities in 2000,

significant market segments were successfully nurtured for private debt securities and investment management, coupled with the development of a comprehensive and innovative Islamic capital market (ICM). Today, these market segments rank among the leading centres in the region, broadening the Malaysian capital market landscape and complementing a well-established stock market which provides equity financing to almost one thousand PLCs and which has functioned as a growth platform for many small and mid-cap companies.

1.1 Primary MarketThe primary markets deal with the trading of newly issued securities. The corporations, governments and companies issue securities like stocks and bonds when they need to raise capital. The investors can purchase the stocks or bonds issued by the companies.Money thus earned from the selling of securities goes directly to the issuing company. The primary markets are also called New Issue Market (NIM). Initial Public Offering is a typical method of issuing security in the primary market. The functioning of the primary market is crucial for both the capital market and economy as it is the place where the capital formation takes place.1.2 Secondary MarketThe secondary market is that part of the capital market that deals with the securities that are already issued in the primary market. The investors who purchase the newly issued securities in the primary market sell them in the secondary market. The secondary market needs to be transparent and highly liquid in nature as it deals with the already issued securities. In the secondary market, the value of a particular stock also varies from that of the face value. The resale value of the securities in the secondary market is dependant on the fluctuating interest rates.Chapter 2 Development of Financial Market in MalaysiaThe Financial Market mainly comprises: i) The Money and Foreign Exchange markets, and ii) The Capital and Derivatives Markets The Malaysia financial market is governed and regulated by the Bursa Malaysia or the Malaysia stock exchange (MYX). Earlier known as Kuala Lumpur Stock Exchange, MYX is the barometer of Malaysia financial market. The various financial institutions are involved in the financial markets.2.1 Derivatives Market The derivatives market is for trading instruments that provide contingent claims on underlying assets, and whose values depend on the price of the underlying assets or securities. Bursa Malaysia Derivatives (BMD), formerly known as Malaysia Derivatives Exchange (MDEX), came into inception on 11 June 2001 with the merger of the Kuala Lumpur Options and Financial Futures Exchange of Malaysia (KLOFFE) and the Commodity and Monetary Exchange of Malaysia (COMMEX Malaysia). The name MDEX was changed to Bursa Malaysia Derivatives Berhad in April 2004.

2.2 Bond Market The bond market is the market through which both the private and public sectors can raise funds by issuing private debt securities and Government securities (such as Treasury bills and Government bonds) respectively. Issuance of Malaysian Government Securities is becoming significant as the government sourced the bulk of its financing requirements from the domestic market. The bond market has become increasingly popular, as many companies issue private debt securities as an alternative means for fund raising. 2.3 Foreign Exchange Market The foreign exchange market is the market for trading in foreign currencies against the Ringgit or against other foreign currencies. Dealings in the foreign exchange market can be undertaken in the spot market as well as the forward market. When the foreign currency transacted has to be delivered immediately, the foreign exchange market is known as the spot market. On the other hand, if the foreign currency that is traded is to be delivered on a future date, (exceeding two working days) the market is known as the forward market. The forward market enables traders and investors to hedge against foreign exchange risk, i.e., a way to reduce the risk of exchange rate fluctuations. Traders and investors could also take a speculative position on the exchange rate movement, with a view to make profits if they read the trend movement correctly in their favour. According to theBank for International Settlements, the preliminary global results from the 2013 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.3 trillion per day in April 2013. This is up from $4 trillion in April 2010 and $3.3 trillion in April 2007. Foreign exchange swaps were the most actively traded instruments in April 2013, at $2.2 trillion per day, followed by spot trading at $2.0 trillion.2.4 Money MarketThe money market is an avenue for channelling short-term funds with maturities typically varying from overnight to those not exceeding 12 months. It provides a ready source of funds for market participants facing temporary shortfalls in funds. At the same time, it also provides short-term investment opportunities and outlets for those with temporary surplus funds. An efficient money market is an intermediary not only for financial institutions but also for firms and non-bank investors to invest their surplus funds. Money market operations comprise two broad categories: placement of short-term funds, and purchase and sale of short-term money market instruments (such as bankers acceptances, negotiable instruments of deposit, Treasury bills, Cagamas notes, etc.). The interbank players in the money market are the commercial banks and investment banks.Chapter 3 Financial ProductsChapter 3.1 Bond3.1.1 Japanese Government Bond (JGB)A bond issued by the government of Japan. The government pays interest on the bond until the maturity date. At the maturity date, the full price of the bond is returned to the bondholder. Japanese government bonds play a key role in the financial securities market in Japan. There are other bond like Samurai bond which is a yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations. Other types of yen-denominated bonds are Euroyens issued in countries other than Japan. 3.1.2 Bank of Thailand Bonds (BOT Bonds)Bank of Thailand bonds are debt securities issued by the Bank of Thailand and used primarily for conducting monetary policy, managing liquidity and interest rate in financial market in order to stabilize economic growth and setting benchmark interest rate that helps enhance corporate debt market development.3.1.3 US Treasury BondA negotiable, coupon-bearing debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of more than 7 years. Interest is paid semi-annually. U.S. Treasury Bonds are exempt from state and local taxes. These securities have the longest maturity of any bond issued by the U.S. Treasury, from 10 to 30 years. The 30-year bond is also called the "long bond." Denominations range from $1000 to $1 million. U.S. Treasury Bonds pay interest every 6 months at a fixed coupon rate. These bonds are not callable, but some older U.S. Treasury Bonds availableon the secondary market are callable within five years of thematurity date. 3.1.4 SukukSukuk is an Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia, Islamic religious law. Because the traditional Western interest paying bond structure is not permissible, the issuer of a sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value.3.1.5 Malaysian Government Securities (MGS)MGS is a long-term interest-bearing bonds issued by the Government of Malaysia to raise funds from the domestic capital market for development expenditure.3.1.6 Malaysia Treasury Bills (MTB)It is a short-term securities issued by the Government of Malaysia for working capital.3.1.7 Government Investment Issues (GII) and Malaysian Islamic Treasury Bills (MITB)GII and MITB is a long-term and short-term non interest-bearing Government securities, which are issued based on Islamic principles by the Government of Malaysia.

Chapter 3.2 Derivatives Products3.2,1 OptionsOptions are contracts through which a seller gives a buyer the right, but not the obligation, to buy or sell a specified number of shares at a predetermined price within a set time period.3.2.2 FuturesA financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange.

ReferencesFutures Definition | Investopedia. 2014.Futures Definition | Investopedia. [ONLINE] Available at:http://www.investopedia.com/terms/f/futures.asp. [Accessed 20 June 2014

Malaysian Bonds Market Information, Malaysia Bonds, Islamic Bonds, Ringgit Bonds, Asian Bonds, Bond Info Hub. 2014.Malaysian Bonds Market Information, Malaysia Bonds, Islamic Bonds, Ringgit Bonds, Asian Bonds,Bond Info Hub.[ONLINE] Available at:http://bondinfo.bnm.gov.my/portal/server.pt?open=514&objID=27280&parentname=CommunityPage&parentid=1&mode=2&in_hi_userid=22874&cached=true. [Accessed 20 June 2014]

Options Defined - NASDAQ.com. 2014.Options Defined - NASDAQ.com. [ONLINE] Available at:http://www.nasdaq.com/investing/options-guide/definition-of-options.aspx. [Accessed 20 June 2014].

Primary vs. Secondary Market. 2014.Primary vs. Secondary Market. [ONLINE] Available at:http://finance.mapsofworld.com/capital-market/primary-vs-secondary.html. [Accessed 20 June 2014].

Sukuk Definition | Investopedia. 2014.Sukuk Definition | Investopedia. [ONLINE] Available at:http://www.investopedia.com/terms/s/sukuk.asp. [Accessed 20 June 2014]

What is U.S. Treasury Bond? definition and meaning. 2014.What is U.S. Treasury Bond? definition and meaning. [ONLINE] Available at:http://www.investorwords.com/5198/US_Treasury_Bond.html. [Accessed 20 June 2014]

Nicholas Tan Pengxi13WBR10039

The capital market refers to markets for medium- to long-term financial assets. For our purposes the capital market encompasses corporate stocks, public and private debt securities with maturity exceeding one year, and shares with no fixed maturity period which are traded in the stock market, the government bond market, and the market for private debt securities. Government securities through issues of Malaysian Government Securities (MGS) account for the bulk of the funds raised by the public sector. Private debt securities (PDS) are the main source of capital market funding for the private sector, with the equity market also providing a sizeable portion through rights issues and initial public offerings (IP0s). The domestic currency (ringgit) bond market has expanded since the financial crisis, supplying some RM34.4 billion in 2000, about 85 percent, of the total net funds raised (Table 1). Low interest rates, financing for expansion, and corporate debt restructuring all contributed to the increase in public and private debt securities. The total value of outstanding bonds reached RM242 billion in 2000 compared to RM202.5 billion in 1999, with PDS comprising 58 percent of outstanding bonds in 2000. The variety of capital market products and services as well as fund-raising capacity expanded significantly, particularly during the 1990s. Up to the late 1980s the government's funding needs dominated fund-raising in the capital market. As much as three-quarters of funds raised were to finance public sector investments. Privatisation in the late 1980s and 1990s resulted in increased financing needs among private sector firms. The capital market expanded to meet this demand. During the 1980s and 1990s improving trading and clearing and settlement systems strengthened the equity market. At the end of September 2000 stock market capitalisation reached RM489 billion with 788 listed companies. A new equity exchange (MESDAQ) was established in late 1997 to promote high-growth and technology companies.Since the implementation of CMP1, there have been structural changes in the channels of savings mobilisation and intermediation in Malaysia to address funding vulnerabilities. The sources of financing have been broadly diversified in tandem with the expansion of the Malaysian capital market. This has reduced concentration and maturity mismatch risks as well as provided greater avenues for the financing of large-scale projects. The diversification of financing sources through broadening the capital market provided a prudent balance between debt and equity assets and strengthened the resilience of the national financial system.The rapid growth in capital market assets over the last decade reflected the rising sophistication in financial intermediation. Deregulation and liberalisation lowered friction costs, increased economies of scale, reduced time-to-market and expanded distribution channels. The increased efficiencies and competitiveness provided the basis for rapid growth of the Malaysian capital market.

During the past 10 years, stock market capitalisation grew by 11% annually to triple in size from RM444.4 billion in 2000 to RM1.3 trillion in 2010. The exchange landscape was transformed with the consolidation of exchanges and clearing houses. This was followed by the demutualisation and listing of the exchange. Transaction costs were substantially reduced while market infrastructure was upgraded with new trading platforms and a shortening in the settlement cycle to T+3 in line with international benchmarks. The consolidation of stockbrokers also increased the soundness of capital market intermediaries and strengthened competitiveness; with some stock broking firms evolving into investment banks.

Primary MarketThe primary markets deal with the trading of newly issued securities. The corporations, governments and companies issue securities like stocks and bonds when they need to raise capital. The investors can purchase the stocks or bonds issued by the companies.Money thus earned from the selling of securities goes directly to the issuing company. The primary markets are also called New Issue Market (NIM). Initial Public Offering is a typical method of issuing security in the primary market. The functioning of the primary market is crucial for both the capital market and economy as it is the place where the capital formation takes place.

Secondary MarketThe secondary market is that part of the capital market that deals with the securities that are already issued in the primary market. The investors who purchase the newly issued securities in the primary market sell them in the secondary market. The secondary market needs to be transparent and highly liquid in nature as it deals with the already issued securities. In the secondary market, the value of a particular stock also varies from that of the face value. The resale value of the securities in the secondary market is dependant on the fluctuating interest rates.

Development of Financial Market in MalaysiaThe Malaysia financial market is governed and regulated by the Bursa Malaysia or the Malaysia stock exchange (MYX). Earlier known as Kuala Lumpur Stock Exchange, MYX is the barometer of Malaysia financial market. The various financial institutions are involved in the financial markets. The money market, the foreign exchange market, the equity market, the derivatives market and the bond market collectively make up the financial markets of Malaysia.

Money MarketThe money market is an avenue for channelling short-term funds with maturities typically varying from overnight to those not exceeding 12 months. It provides a ready source of funds for market participants facing temporary shortfalls in funds. At the same time, it also provides short-term investment opportunities and outlets for those with temporary surplus funds. An efficient money market is an intermediary not only for financial institutions but also for firms and non-bank investors to invest their surplus funds. Money market operations comprise two broad categories: placement of short-term funds, and purchase and sale of short-term money market instruments (such as bankers acceptances, negotiable instruments of deposit, Treasury bills, Cagamas notes, etc.). The interbank players in the money market are the commercial banks and investment banks.

Foreign Exchange Market The foreign exchange market is the market for trading in foreign currencies against the Ringgit or against other foreign currencies. Dealings in the foreign exchange market can be undertaken in the spot market as well as the forward market. When the foreign currency transacted has to be delivered immediately, the foreign exchange market is known as the spot market. On the other hand, if the foreign currency that is traded is to be delivered on a future date, (exceeding two working days) the market is known as the forward market. The forward market enables traders and investors to hedge against foreign exchange risk, i.e., a way to reduce the risk of exchange rate fluctuations. Traders and investors could also take a speculative position on the exchange rate movement, with a view to make profits if they read the trend movement correctly in their favour.

Derivatives Market The derivatives market is for trading instruments that provide contingent claims on underlying assets, and whose values depend on the price of the underlying assets or securities. Bursa Malaysia Derivatives (BMD), formerly known as Malaysia Derivatives Exchange (MDEX), came into inception on 11 June 2001 with the merger of the Kuala Lumpur Options and Financial Futures Exchange of Malaysia (KLOFFE) and the Commodity and Monetary Exchange of Malaysia (COMMEX Malaysia). The name MDEX was changed to Bursa Malaysia Derivatives Berhad in April 2004.

Bond Market The bond market is the market through which both the private and public sectors can raise funds by issuing private debt securities and Government securities (such as Treasury bills and Government bonds) respectively. Issuance of Malaysian Government Securities is becoming significant as the government sourced the bulk of its financing requirements from the domestic market. The bond market has become increasingly popular, as many companies issue private debt securities as an alternative means for fund raising.

Financial Products

Malaysian Government Securities (MGS)MGS is a long-term interest-bearing bonds issued by the Government of Malaysia to raise funds from the domestic capital market for development expenditure.

Malaysia Treasury Bills (MTB)short-term securities issued by the Government of Malaysia for working capital.

Government Investment Issues (GII) and Malaysian Islamic Treasury Bills (MITB)GII and MITB is a long-term and short-term non interest-bearing Government securities, which are issued based on Islamic principles by the Government of Malaysia.

SukukSukuk is an Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia, Islamic religious law. Because the traditional Western interest paying bond structure is not permissible, the issuer of a sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value.

US Treasury BondA negotiable, coupon-bearing debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of more than 7 years. Interest is paid semi-annually. U.S. Treasury Bonds are exempt from state and local taxes. These securities have the longest maturity of any bond issued by the U.S. Treasury, from 10 to 30 years. The 30-year bond is also called the "long bond." Denominations range from $1000 to $1 million. U.S. Treasury Bonds pay interest every 6 months at a fixed coupon rate. These bonds are not callable, but some older U.S. Treasury Bonds availableon the secondary market are callable within five years of thematurity date.

OptionsOptions are contracts through which a seller gives a buyer the right, but not the obligation, to buy or sell a specified number of shares at a predetermined price within a set time period.

FuturesA financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange.

Japanese Government Bond (JGB)A bond issued by the government of Japan. The government pays interest on the bond until the maturity date. At the maturity date, the full price of the bond is returned to the bondholder. Japanese government bonds play a key role in the financial securities market in Japan.

Bank of Thailand Bonds (BOT Bonds)Bank of Thailand bonds are debt securities issued by the Bank of Thailand and used primarily for conducting monetary policy, managing liquidity and interest rate in financial market in order to stabilize economic growth and setting benchmark interest rate that helps enhance corporate debt market development.

ReferencesFutures Definition | Investopedia. 2014.Futures Definition | Investopedia. [ONLINE] Available at:http://www.investopedia.com/terms/f/futures.asp. [Accessed 20 June 2014

Malaysian Bonds Market Information, Malaysia Bonds, Islamic Bonds, Ringgit Bonds, Asian Bonds, Bond Info Hub. 2014.Malaysian Bonds Market Information, Malaysia Bonds, Islamic Bonds, Ringgit Bonds, Asian Bonds,Bond Info Hub.[ONLINE] Available at:http://bondinfo.bnm.gov.my/portal/server.pt?open=514&objID=27280&parentname=CommunityPage&parentid=1&mode=2&in_hi_userid=22874&cached=true. [Accessed 20 June 2014]

Options Defined - NASDAQ.com. 2014.Options Defined - NASDAQ.com. [ONLINE] Available at:http://www.nasdaq.com/investing/options-guide/definition-of-options.aspx. [Accessed 20 June 2014].

Primary vs. Secondary Market. 2014.Primary vs. Secondary Market. [ONLINE] Available at:http://finance.mapsofworld.com/capital-market/primary-vs-secondary.html. [Accessed 20 June 2014].

Sukuk Definition | Investopedia. 2014.Sukuk Definition | Investopedia. [ONLINE] Available at:http://www.investopedia.com/terms/s/sukuk.asp. [Accessed 20 June 2014]

What is U.S. Treasury Bond? definition and meaning. 2014.What is U.S. Treasury Bond? definition and meaning. [ONLINE] Available at:http://www.investorwords.com/5198/US_Treasury_Bond.html. [Accessed 20 June 2014].VICTOR HO KAI SHENG RFI 4 13WBR12255

Write a report on the development of the capital / financial markets in Malaysia and how with this developments more financial products could be used by Malaysian companies to finance operations, expand locally and in the international markets and how it changes their choice of financing.(1,000 words)

Capital market has grown along with the economy of Malaysia. Malaysia's capital market expanded by 10.5% to RM2.7 trillion in 2013, underpinned by steady growth in key markets and is considered as one of the highly developed market in the region. Capital marketsarefinancial marketsfor the buying and selling of long-termdebtorequity-backedsecurities. These markets channel funds from surplus units such as companies or governments making long-term investments to deficits units. Capital market consists of primary market and secondary market. In primary market, new stock or bond issues are sold via processes called underwriting. The main entities seeking to raise long-term funds on the primary capital markets are governments (which may be municipal, local or national) and business enterprises (companies). Governments tend to issue only bonds, whereas companies often issue either equity or bonds. In secondary market, previously issuedfinancial instrumentssuch asstock,bonds,options, andfuturesare bought and sold to meet investors needs. There are various type of financial instruments in the financial market, however for source of financing, there are mainly two types of financial instruments, which are debt financing and equity financing. Debt financing involves borrowing money, typically in the form of a loan from a bank or other financial institution or from commercial finance companies. Equity financing involves bringing in investors or partners who provide capital in exchange for a share of ownership of the business.These investors or partners generally invest because they expect to make a profit when the business becomes successful.The examples of debt financing include money-market and bond instruments. Money-market instruments are debt securities that have maturities ranging from one day to one year and are extremely liquid.Treasury bills, federal agency notes, certificates of deposit (CDs), eurodollar deposits, commercial paper, bankers' acceptances, and repurchase agreements are examples of instruments. The suppliers of funds for money market instruments are institutions and individuals with a preference for the highest liquidity and the lowest risk.Meanwhile, a bond is a security that represents a borrower's commitment to the lender who makes funds available to the borrower. Therefore, bond investors in effect lend a sum of money to the bondissuer that must be paid back by the specified maturity date. The borrower must also pay the lender interest, known as a coupon. An example of international bond is Samurai Bond. Samurai Bond is a yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations. Itgives issuers the ability to access investment capital available in Japan. The proceeds from the issuance of samurai bonds can be used by non-Japanese companies to break into the Japanese market, or it can be converted into the issuing company's local currency to be used on existing operations.On the other hand, equity financing refers to the process of raising capital through the sale of shares in an enterprise. Equities are securities that represent a fraction of their issuer's equity capital. Each shareholder is entitled to a share of the company's earnings that is proportional to the amount of shares held and is paid out in the form of an annual dividend. Issuing shares to public has been a common source of financing to companies. In addition, there is another financial instrument called derivative instruments, which are are contracts that are used to buy or sell, at a fixed date and an agreed price, a specified quantity of a financial instrument, or to swap cash flows at a fixed date. Derivatives may be firm contracts or options, and traded on a regulated market or over-the-counter. They are called derivatives because their value is derived from an underlying asset and varies with this asset's price. Such financial instruments may be used to gain exposure to a given asset or to hedge the risk of this exposure. Examples of derivatives include futures. A futures contract requires delivery of an underlying asset at a specified date and according to specific terms. Quantities, delivery dates and payment terms are standardized in futures contracts. The underlying asset is delivered at the agreed price at the end of the contract. Another example would be options. The buyer of an option acquires the right to purchase from (call option) or sell to (put option) the option seller a given amount of an underlying asset at a predetermined price, or to receive the difference between the option exercise price and the underlying price, either at a specified date (in the case of a European option) or any time before the option expires, in the case of an American option.

Yang Qi Onn 2RFI4 13WBR10443

Development capital market in MalaysiaA capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds.

Capital market financing has developed along with Malaysia's economy. It is a reflection of increasing income, savings and private sector demand, the amount of funds generated in the capital market over the thirty years between 1962 and 1992 increased by Ringgit Malaysia (RM) 7.5 billion per annum.

The other services and product that support these markets also expanded, including activities of investment management funds, stockbrokerages, advisor services. By September 2000, Malaysia had 62 licensed stock brokerages, 32 futures broking companies and 735 licensed futures broker representatives.

The firstCapital Market Master Plan (CMP1)for the period of 2000-2010 would go a long way in directing the development of Malaysia's capital market. CMP1 aimed to build a capital market that would be competitive in meeting the countrys capital and investment needs and support long-term nation-building efforts. The sizes of the capital market expanding from RM718 billion to RM2 trillion or at an annual compounded growth rate of 11%.

CMP1 had identified a total of 152 recommendations with strategic initiatives to strengthen fund-raising, promote the growth of the investment management industry, enhance market and intermediation competitiveness, provide a strong and facilitative regulatory regime and establish Malaysia as an international Islamic capital market centre.

Primary market

This is a market where firm issuenew securities on an exchange to the public for the first time. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO).Companies, governments and other groups obtain financing through debt or equity based securities. Primary markets are facilitated by underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors.This also known as "new issue market" (NIM).The function of the primary market is crucial for both the capital market and economy as it is the place where the capital formation takes places.

Secondary market

The secondary market is that part of the capital market that deals with the securities that are already issued in the primary market.The investors who purchase the newly issued securities in the primary market sell them in the secondary market. The secondary market needs to be transparent and highly liquid in nature as it deals with the already issued securities. In the secondary market, the value of a particular stock also varies from that of the face value.

Development of financial market in Malaysia

The Money Market The money market is an avenue for channelling short-term funds with maturities typically varying from overnight to those not exceeding1year. It provides a ready source of funds for market participants facing temporary shortfalls in funds. At the same time, it also provides short-term investment opportunities and outlets for those with temporary surplus funds. An efficient money market is an intermediary not only for financial institutions but also for firms and non-bank investors to invest their surplus funds. Foreign Exchange MarketForeign exchange market is the market for foreign currency transactions against ringgit or against other foreign currencies. Trading in the foreign exchange market can be taken in the spot and futures markets. When foreign currency transactions, must be delivered immediately, the foreign exchange market is called the spot market. On the other hand, if you are trading foreign exchange is a future delivery date; the market is called the forward market. Forward market allows traders and investors to hedge against foreign exchange risks, namely a way to reduce the risk of exchange rate fluctuations.Bond MarketBond market is issued by private bonds and government securities market to raise funds through private and public sectors. Malaysian government securities issuance is becoming significant as the bulk of the financing needs of the government procurement from the domestic market. The bond market has become increasingly popular because many private companies issue bonds as an alternative means of raising capital.Equity MarketThe short-term money market funds, the equity market is to raise long-term funds. Development of the equity market in favour of society, because it offers more channels for borrowers, especially the medium-and long-term financing. The equity market provides a channel for enterprises through issuing stocks and shares, with the main or second board market in Malaysia stock exchange listing to raise funds. Derivatives MarketDerivatives market for the provision of the related assets or contingent claims trading tools, and its value depends on the price of the underlying assets or securities. The main use of derivatives is to hedge against fluctuations in trading or price of the underlying assets, although it is possible to use derivatives speculative capital gains.

Financial productMalaysian Government Securities (MGS)Malaysian Government Securities (MGS) is long-term interest-bearingbonds issued by the Government of Malaysia to raise funds from the domestic capital market for development expenditure.Malaysian Treasury Bills (MTB)Malaysian Treasury Bills (MTB) is short-term securities issued by the Government of Malaysia for working capital.Government Investment Issues (GII) and Malaysian Islamic Treasury Bills (MITB)Government Investment Issues (GII) and Malaysian Islamic Treasury Bills (MITB) is long-term and short-term non- interest-bearing Government securities, which are issued based on Islamic principles by the Government of Malaysia.Bankers AcceptanceThrough a short-term debt instruments issued by commercial bank guarantee line. Bankers' acceptances issued by the company are part of a commercial transaction. These instruments are similar to the Treasury bills often usedin money market funds. Bank acceptances are traded at the nominal value of the discount in the secondary market, which may be an advantage because bankers' acceptance does not need to hold to maturity transactions. Bank acceptances are financial instruments often used in international trade.EurobondIssued by international syndicate, and according to which the classification of the euro currency denominated bonds. In dollar-denominated and issued by an Australian company Eurodollar bonds in Japan will be an example of euro bonds. In this example, the Australian company could issue Eurodollar bonds in any country other than the United States

SukukAn Islamic financial certificate similar to Western financial bonds that in line with Shariah, Islamic religious law. The payment bond structure of traditional Western interests is not allowed, Islamic bond issuers to sell an investor group the certificate, who then leased back to the issuer for a predetermined rental fee. Issuers also make contract commitments to buy back bonds at par future date.Forward contractA tailor made agreement between two parties to purchase or sell an asset at a predetermined price on a specified future date. A forward contract can be fulfilled either by cash settlement or delivery.Future contract A contractual agreement, generally make on the trading on futures exchange, to buy or sell a particular commodity or financial instrument at a predetermined price in the futures. Futures contracts detail the quality and quantity of the underlying asset.SwapA swap is an agreement between two parties to exchange cash flows over time sequence. Under normal circumstances, when the contract began, at least one of these series is random or uncertain variables, such as interest rates, exchange rates, stock prices and commodity prices to determine the cash flow.

Referencehttp://www.sc.com.my/wp-content/uploads/eng/html/cmp2/cmp2_final.pdfhttp://www.tradechakra.com/economy/malaysia/capital-market-in-malaysia-167.phphttp://www.ibbm.org.my/pdf/CIAFIN%20Oct%2008%20Chap%201.pdfhttp://www.kpmg.com.my/kpmg/publications/tax/I_M/Chapter5.pdf