Professional Documents
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FSTEP Islamic - Treasury - Operation
FSTEP Islamic - Treasury - Operation
1. Overview
2. Objectives of Treasury
3. Development of Malaysia Financial Markets
4. Islamic Money Market
5. Islamic Financial Instruments
6. Islamic Derivatives Instruments
7. Islamic Foreign Currency
8. FOREX Trading
9. FOREX Transactions in Islamic Banking Operations
1
Overview
Overview
SOURCES USES
Customer Deposits Statutory Reserve
Liquidity Requirement
Current Account Financing
Retail Saving Account Trade Finance
Markets Investment Account - General Investment in quoted/
Special unquoted share
Investment /Financing
Retail Liquidity Requirement
Markets Specific Investment Account
Statutory Reserves
3
Development of Malaysian
Financial Markets
Development of Islamic Financial Market
Characteristics : Characteristics :
Characteristics : Global market
Small Niche Broader Market
Needs: Needs:
Needs: 1. International
1. Alternative to 1. Variable needs
of Client acceptance
conventional bond 2. Liquidity
Products 2. Inter-bank instruments
3. Secondary market 3. Hedging Tools
2. Primary market
Focus Product : Focus Product :
Focus Product : Bank - Clients
Bank – Clients Bank - Clients
Bank - Bank Bank – Bank
Bank – Govt
Example :
IRHB invest RM1,000,000 with BIMB for 30 days.
Profit sharing ratio is negotiated at 75:25. Based on the
prevailing gross profit rate during transaction i.e. 5.5%,.
IRHB is expected to receive net profit of 4.125%. Upon
maturity of the investment, BIMB’ s effective gross profit
rate has increases to 6%.
= 1,000,000 x 6% x 30 x 0.75
365
Risk Spectrum
Increased risk and volatility
(SP-PP) x 36500
EY/YTM =
t X PP
BNM BNMN-i
4. Through the sale and purchase
transaction, a debt has been
created. This debt is securitized
through the issuance of BNNN
5. BNM to
1. Identify Assets 3. BNM buy back the certificate of allot BNMN-i
BNM assets at par value to successful
(100.00) to be paid on the banks via
maturity date Rentas
Government of MITB
Malaysia 4. Through the sale and purchase
transaction, a debt has been
created. This debt is securitized
through the issuance of MITB
5. GOM thru
1. Identify Assets 3. GOM buy back the certificate of BNM to
GOM assets at par value allot MITB
(100.00) to be paid on the to successful
maturity date banks via
Rentas
Government of GII
Malaysia 4. Through the sale and purchase
transaction, a debt has been
created. This debt is securitized
through the issuance of GII
5. GOM thru
1. Identify Assets 3. GOM buy back the certificate of BNM to
GOM assets (principal plus allot MITB
profit) to be paid on the maturity to successful
date banks via
Rentas
Proceed = FV ( 1-
rxt
365
)
Corporation ICP
4. Through the sale and purchase
transaction, a debt has been
created. This debt is securitized
through the issuance of ICP
5. Lead
1. Identify Assets 3. Corporation buy the assets arranger to
(principal plus profit) to be paid allot ICP
on the maturity date to successful
banks
Tender Panel
Assets Members
2. Sell assets on a tender basis
either on discount or at par value
Islamic Financial Instruments
Proceed = FV ( 1-
rxt
365
)
RV
Price =
1+ ( TxY
36500
)
[Price are rounded up to 4 nearest decimal point]
RV
Price =
( 1+
Yld
m )
n-1+DSC/DCC
Counter Party
2
Commodity
Deferred C/party then sells the
BIMB, commodity to BIMB via
$ deferred payment. The
1 Acting as Agent
Sale Price represents
the return from deposit
$ Commodity BIMB, as Principal for BIMB.
C/party appoints
BIMB as its agent to
buy commodity from Trader 1
London Metal Commodity $ 3
Exchange (LME).
BIMB buys the BIMB sells the
commodity by cash commodity at LME via
via Trader 1.
Trader 2 Trader 2 for cash.
Islamic Financial Instruments
Commodity Murabahah Investment
BIMB then sells the commodity to
C/party. Sale Price represents
BIMB’s expected return from
BIMB investment and will be paid by
C/party via deferred payment.
Deferred 2
1 $ Commodity
$
Commodity
5 6 9
2 1 Issue Receive Pay
Pay monthly Grant Islamic CIB cash coupon
8
instalment financing
Remit Cagamas instalment
4
Receive cash
Approved 3
Sellers Cagamas
Sell Islamic debts
7
Pre-sale
Appoint Approved Sellers as servicer During sale
Post-sale
Islamic Financial Instruments
P = FV
1+i mn-1+D/E
m
Proceed = NV x PB
100
P = Price of Bond
FV = Face value per RM100 nominal value
i = Yield to maturity
m = Number of coupon payment per year
n = Number of years to maturity
D = Number of days from value date to next coupon date (as if the bond pays semi annual coupon)
E = Number of day in coupon period
NV = Nominal Value of bond
Islamic Financial Instruments
P = mn c/m x 100 + FV -
Σ t-1+D/E mn-1+D/E
t=1 (1 + i/m) (1 + i/m )
100 x c x A
m E
Proceed = NV x PB + NV c x A
100 2 E
Pays Floating
Obligations
Financial Liability
Islamic Derivatives Instruments
IPRS (cont’d)
• IPRS Stage 1: Fixed Profit Rate Leg
Broker Broker
3
1 Bank Islam as Agent
CParty buys commodity from CParty sells commodity to Bank Islam Bank Islam sells commodity to
1 broker through Bank Islam as
2 at FIXED price (costPlus - Deferred)
3 broker
Agent
Commodity Flow
Funds Flow
Islamic Derivatives Instruments
IPRS (cont’d)
IPRS Stage 2: Floating Profit Rate Leg
broker broker
1
3 Bank Islam as Agent
IPRS
Counterparty 2 BIMB
BIMB buys commodity from broker BIMB sells commodity to CParty at CParty sells commodity
1 2 FLOATING price (costPlus - Deferred)
3 to broker through Bank
Islam as Agent
Commodity Flow
Funds Flow
Islamic Derivatives Instruments
US
Subsidiary
1. USD 2.USD Profit
Principal Payment
MYR
Financing
Islamic Derivatives Instruments
Exchange of Principal on Maturity Date
US
Subsidiary
3. USD
Principal
I 3.USD Principal
C Malaysian BIMB
C Corporate 3. MYR Principal
S
3. MYR
Principal
MYR
Financing
7
Islamic Foreign Currency
Islamic Foreign Currency
Corporate Forex:
• Provides quotations to corporate customers
• Provides advisory services to corporate
customers
• Daily branch FX counter rates
• Marketing
FOREX TRADING
Proprietary Trading:
• Trading on the inter-bank market
• Taking position for the bank
• Guided by limits imposed by bank
• ‘Squaring off’ corporate positions
FOREX TRADING
Funding:
Placing of excess foreign currency funds
(borrowing of shortage currency funds) in
deposits/trading of excess funds
FOREX TRADING
Corporations: Individuals:
•Trade •Investments
•Investment •Personal use
Commercial Banks:
•Provide services to corporations
and individuals
•Trading for own accounts
•Spot
•Forward
•Swap
•Futures
•Non-Deliverable Forward (NDF)
•Options
•Structured Products/Derivatives
OVERVIEW
Immediate Contracts
FX Contracts
Forward Contracts
OVERVIEW
Immediate Contracts
Value Tomorrow
Value Today (TOD)
(TOM)
Value Spot
FINANCIAL SECTOR TALENT ENRICHMENT PROGRAMME
Thank you