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drMBSA1523 - FEEP-answer Sheet Template
drMBSA1523 - FEEP-answer Sheet Template
drMBSA1523 - FEEP-answer Sheet Template
International
Business
School
Matric No : MBS211032
Section : 22
2 20
3 20
100
1
QUESTION 1
The Monetary Policy Statement, which is released after the Monetary Policy Committee
meeting, contains information about the Overnight Policy Rate (OPR), the single indicator
used to reflect the direction of monetary policy. The OPR, or overnight interest rate, is
controlled by BNM. It is the interest rate that a bank that borrows must pay to a big bank. The
OPR has an impact on employment, economic growth, and inflation. It gauges the overall
health of Malaysia's financial and economic system. While maintaining the absolute minimal
amount of liquidity required by Bank Negara, the majority of banks will lend as much as they
can. If a cash withdrawal exceeds the bank's cash reserves, the bank will have to borrow
money from any other bank and will charge interest, which is where the OPR comes into play.
Increases in the OPR will immediately raise the cost of borrowing for banks, starting a major
impact.
Bank Negara regulates banks and other financial institutions with OPR. OPR will be cut for
the first time in seven years, according to BNM's statement from July 2016. OPR was reduced
as a result of the significant risks associated with the British government's decision to leave
the European Union (EU), generally known as Brexit. The present low savings rates are
having a negative impact on retirees and savers. The wealthier may choose high-yielding
bonds, while others may be duped by investment strategies that promise greater returns. Since
deposit rates take time to drop while lending rates are reduced practically immediately when
the rate changes, a lower OPR will reduce banks' net revenue margin. Despite the possibility
of slower financing growth, banks have tools to reduce the risks associated with a reduced
OPR. The effects will be worse the longer the lockdown lasts. The strain on some
corporations' debt may be lessened by lowering the OPR. An OPR decline has little impact on
employment, spending, or investment.
Before deciding to spend the extra disposable income on goods, households will carefully
review their financial statements. Most people shun meat even when it is available for eating,
leaving butchers with a surplus supply. Although pricing will benefit, this does not necessarily
mean that consumers will buy more beef for less money. Economic theory has a historical
issue with compositional mistakes, which is the one it faces now. If a corporation can't predict
future demand, it won't raise output. If the price of its product is higher than its average total
2
cost or if its marginal expenses are higher than its average variable cost, this will reduce
output, but only by the smallest margin feasible. Neither of these will raise the overall supply
or increase the overall demand. Malaysia's economy is export-driven, so it cannot be saved by
domestic aggregate demand. Simply said, it simply lacks the population of China or India to
accomplish this.
According to BNM statistics, significant OPR reductions were made during economic
downturns, specifically the 2008–2009 Global Financial Crisis and the ongoing COVID-19
pandemic. The Overnight Policy Rate (OPR) of Bank Negara Malaysia (BNM) has been
reduced by 25 basis points to 1.75 percent. According to the BNM press conference, COVID-
19 has had a considerable impact on the world economy. The current state of the economy is
dire, and negative global growth is predicted for the year. Despite the fact that a trough is
predicted for the second half, the recovery may be delayed by a broad-based labor market
standstill and cautious consumer and corporate behavior. In order to battle the COVID-19
pandemic, certain major economies have begun to loosen restrictions, allowing for a gradual
return to the market.
Risk aversion is still high despite the improvement in financial prospects. Negative risks still
exist for the global situation, particularly if the outbreak reappears and containment measures
need to be resumed. BNM says that both national and international efforts to fight the
pandemic caused Malaysia's economic growth to slow down a lot in the second half of this
year.
The forecast recovery in the local economy is expected to benefit from a slight improvement
in the global economic environment. However, according to BNM, there are significant risks
to the strength and speed of the recovery from both internal and external factors. Additional
pandemic outbreaks that require the return of containment measures, ongoing labour market
issues, and a gradually recovering global economy are a few of them.
3
Investment will decrease as interest rates increase because borrowing money will become
more expensive. The national income, consumption, aggregate demand (the total demand for
all goods and services), and prices will all go down if investment goes down.
For traders who use capital (loan money) from the bank, an increase in interest rates will result
in higher monthly payments (Ringgit Malaysia) to the bank and higher manufacturing costs. In
order to keep the same profit margin, the price of the product will go up. This is because the
increase in production costs will be passed on to consumers in the form of a higher price for
the end product.
This shows that the cost of goods will reduce and inflation will also decrease if investment and
rising costs grow.
When the US central bank raises interest rates—which it has done so three times since July
2022—it could result in a transfer of funds, particularly from Malaysia to the US. So,
Malaysia should also raise its interest rates to attract more foreign investment and keep
Malaysian investors from moving their money to other countries.
However, market sentiment, such as political stability, public order, natural disasters, wars,
etc., which determines the perception and confidence of investors (in the money market), and
the security of their investment, are also factors that affect the value of money in addition to
economic indicators and the BOP.
4
1.3 Asset market
References:
https://www.bnm.gov.my/
https://bebasnews.my/2022/07/13/apabila-bank-negara-malaysia-meningkatkan-opr/
QUESTION 2
5
350
300
250
200
MC
AFC 150
AVC
ATC 100
50
0
0 2 4 6 8 10 12
Quantity of Output
When revenue and total costs are equal, a business is considered to be at break-even, which
means it is not earning a profit or losing money. A company can determine how many
products it needs to sell to break even by understanding its break-even level of output (BEP).
Calculated for break-even point as per below:
Break-even = fixed costs ÷ (selling price − variable costs)
A company will continue making items in the short term as long as its revenues at least cover
its variable costs. AR x Q = Revenue. The term "variable costs" refers to expenses like raw
materials, component parts, and hourly-paid labor that directly fluctuate with production. If
the average variable cost (AVC) is more than the price per unit (AR), then a contribution is
being made to cover certain fixed (overhead) costs.
If we assume that fixed expenses are lost in the event of a shut-down decision, the firm would
therefore be better off continuing production. However, if demand declines and the price falls
below AVC, a company may decide to halt production in order to reduce losses. This is
because not enough money is being made, and if manufacturing continued, more losses overall
would be incurred.
From table 1, it shows that for break-even point is at quantity 11 and shut down price at
quantity 10.
6
References:
https://www.bbc.co.uk/bitesize/guides/zb2shbk/revision/1
https://www.tutor2u.net/economics/reference/shut-down-price-chain-of-analysis
QUESTION 3
-----add your answer here------maximum 5 pages only-------- ([ ]/20 marks)
References:
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