JANUARY 2013 QUESTION 1 a) Supplier of fund InIntermediaries Uses of fund

Security

Security

(Deposit & Insurance)

(Equity & Debt)

b i) Main principle of Islamic Banking A banking system that is based on the principles of Islamic law (also known Shariah) and guided by Islamic economics. It operates accordance with fight of Muamalat. Sharing Profit & Loss Prohibition of Riba Prohibition of Gharar and Maysir

B ii) Explain 2 Syariah concept of Islamic Banking Wadiah Safe keeping. Wadiah is safekeeping of a deposit. Such a deposit is hold in trust (Amanah). If the the depositor pays for this favour, the depositary needs to replace it in case of lost. The usage of the deposit is subject to permission of the depositor. Profit Sharing. Joint Venture.(partnership) Cost Plus. Murabahah is a particular kind of sale where the seller expressly mentions the cost of the sold commodity he has incurred, and sells it to another person by adding some profit thereon. Thus, Murabahah is not a loan given on interest; it is a sale of a commodity for cash/deferred price. Defered Payment Agency. Literally Wakalah means protection or remedying on behalf of others. Legally Wakalah refers to a contract where a person authorizes another to do a certain well-defined legal action on his behalf

Mudharabah Musyarakah Murabahah

Bai Bithaman Wakalah

C) Differentiates between the stock broking function and the corporate finance function for investment bank. Securities firms specialize primarily in the purchase, sale & brokers of securities while investment banks primarily engage in organizing, underwriting & distributing issues of securities. In most recent year, investment banks merger and acquisition. In both cases, this firms act as financial intermediaries. In that, they bring together economic units who need money with those units who wish to invest money

QUESTION 2 a) 3 reason for banks to meet minimum capital adequacy by regulators. To cushion against unanticipated. To indicated whether the bank can deliver its products and service effectively. To protect depositors. To give public confidence

b) 3 reason why the analysts gave such a view Emphasis on fee based or non-investor income through strategic alliance of bank due Growth of retail loan Project under the economic Transformation Plan would enhance the borrowing of big players.

c) Impact of higher loans on liquidity and profitability of banks. Less liquid & this is risky as it can lead the possibility of being unable to meet with the customer need for withdrawal & request new loan.

QUESTION 3 a) Why bank maintain high percentage of investment in short term securities. To maintain liquidity To give public confidence To avoid corruption

Implication of having little liquidity Little liquidity will make commercial bank having less cash. Cannot giving loan to customer

This shortage of liquidity could reflect a fall in asset prices below their long run fundamental price, deterioration in external financing conditions, reduction in the number of market participants, or simply difficulty in trading assets

Implication of having excess liquidity When there is a surplus of liquidity its impact on the operations of the central bank will be determined by the extent to which free reserves are being held for voluntary or excess reasons. Central bank attempts to absorb voluntary reserves may be ineffective unless the instrument used in draining operations is similarly desirable to the counterparty. Commercial banks holding excess reserves may be more willing to make use of draining operations if they offer a positive return. However, the presence of excess reserves in the financial system creates a deadweight loss for the commercial bank if they are left holding them. This will impact on the interbank market, lending by commercial banks and the deposit rates they offer

b) 4 Sources of liquidity that can help meet requirement Deposits by the employee of Malaysian (shareholder) Annual fees by customers Investment in properties Other sources such as penalty charge, interest charge and unclaimed money.

c) Two reason why rating is needed. Credit Worthiness of corporate bond for long term purpose. To classified the bond according to their type & value & quality To have higher quality of bond.

QUESTION 4 a) Explain each of them Fund Manager Security Firm Pension Fund Insurance Company To planning & Organize the fund and protect the portfolio To protect portfolio or the changes in stock market To protect against employee funds& to protect against change in interest rate To protect change in discount & interest rate

b) 3 factors that affect FOREX Different in inflation rates

Different in interest rates Political factor Government policies

c) Diferent between options and futures option You have the option to buy & sells You have the right to make decision before the maturity date QUESTION 5 a) Diferent between 2 type operation in money market 1) Primary Market (first issue) 2) Secondary Market (2nd issue) The primary is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. 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). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. Other than that, secondary market can refer to the market for any kind of used goods. The market that exists in a new security just after the new issue is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock. b) Function of money market security to have < 1 year maturity 1) Liquidity in their financial institution 2) They want to make sure the security of their investment. 3) Want to having early return. c) Two role of Labuan International Financial Exchange 1) Economic growth to the country 2) To supplement or complement offshore market by providing taxable and tax incentive. future No option No have the right to make decision

QUESTION 6 a) A high loan to total assets ratio will contribute towards profitability of a bank but in term of liquidity, loans are least liquidity of a assets. Thus, a high loan to total asset indicated the bank is less liquid and this is risky as it can lead to possibility of meet customer need such as withdrawal or giving new loan.

b) Bendera Banks performance in term of profitability has drop due to provision of NPL. As mention, they have just complete their merger with Bendera Bank and this could have lead they to higher operating expenses. In term of loan growth, Bendera Bamk registered good loan growth compared with industry average, they have higher growth In term of deposit, Bendera Banks also registered higher base which is 1.6 time higher to last year. Market where is above 10% for their deposit is quite a big percentage. Although they have provision for non-performing loan, they should be able to beef up this area through the diligence in loan approval to improve their asset quality through good credit analysis, credit worthiness, quantitative analysis and qualitative analysis.

c) 3 Broad classes of loans. Business loan The focus by mostly banks. Involve big amount of money. Financing the business purpose. Example : Hire Purchase, Fixed Asset Loans, Contract Financing, Project Financing ETC Housing Loan Purpose is to purchase house. Either conventional or Islamic. Consumer Loan Personal loan. Educational Loan For educational purpose. Mara, PTPTN, Yayasan Negeri.