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Financial Management Assignment 1 (ANG KIM POH FBS12)
Financial Management Assignment 1 (ANG KIM POH FBS12)
Lecturer: Mr Rajamohan
Table of Content
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1. Definition of market 3
1. Definition of Market
The Capital markets refers to the places where funds are borrowed and traded with a
maturity of more than one year. The capital market is composed of the primary market and
the secondary market. The difference between the primary capital market and the secondary
market is that the primary market is where new securities are issued and sold whereas the
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secondary market is where previously issued securities are traded among investors. The stock
market and bond market are also the most common capital markets for everyone, and the
capital market is also where everyone seeks to improve transaction efficiency. These markets
bring together providers and seekers of funds and are venues for the exchange of funds
between providers of funds and those who need access to funds. Banks and investors are
typical suppliers, whereas businesses, governments, and individuals often look for finance.
The stock market, bond market, currency and foreign exchange markets are among the
trading venues of the capital market, and the majority of them are located in important
financial hubs like New York, London, Singapore, and Hong Kong.
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successfully helped maintain market order and ensured limited disruption to overall
capital markets.
Loan Providers: The organizations act as the loan providers which provide loans to capital
market. The loan providers helps to meet the current financial needs for the loan takers.
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Examples:Savings organizations, insurance organizations.
Loan takers: The organizations will normally appear in a huge number .They are the one
who want to take a loan from the capital market.One may apply for a specific loan amount
from the bank to pay for things that they need or want,or to start up a business.
Examples: Government organizations, Corporate bodies, Non-profit organizations, Small
business, and Local authorities.
The participants below are also involved with the capital market among transactions.
Regulatory organizations: It is the government organizations which act as the authority that
monitors and controls this market to make sure both the corporations and investors is under
secured. It has also played a role in protecting forgery in stock market as well as controlling
the margin.
For example,The Bank Negara is on behalf of government generally controls the financial
activities in Malaysia.
a. Facilitates Transactions
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- The first and most important advantage of the capital market is that it will facilitate
transactions between the savers such as individuals, banks, high net worth individuals
and consumers like companies that often need capital. Therefore, to help the savers earn
income in the form of dividends, interest, and capital appreciation, which the company
can also use this money to grow and become bigger. In other words, the capital market
has played a good intermediary role between two parties. One party has money but no
opportunities, and the other party has many opportunities but no money. Thus, the
capital market is to fix that gap and help both sides.
b. Liquidity
- Other than that, the advantage of the capital market is also very liquid. It is because
investors can invest and withdraw money from the market when they need it, while
other markets such as the real estate market, cannot simply enter or leave the market. In
short, you can buy and sell securities in the capital market just with one click, ensuring
that you never face the problem from lack of liquidity. Therefore, this factor ensures that
investors and companies have more confidence in the capital markets compared to other
markets. For example, the capital market in Malaysia has high levels of liquidity, which
has helped in maintaining an orderly market and ensures limited disruptions to the
overall capital market.
c. Ease of Use
- Buying stocks is no longer a hassle. With the development of technology, assets such as
bonds, debts, and stocks in the capital market can be bought and sold online. Investors
can execute all trades on the trading platform at their own convenience. These online
stock trading facilities enhanced the experience of many investors, thus making the
entire investing experience simple and easy.
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a. High Risk
- The first drawback of the capital market is that it is very high risk. It is because all the
instruments in the capital market, whether it is stocks, derivatives, swaps, have inherent
risks associated with them, thus many innocent investors might lose their life savings
because of wrong decisions and bad investment in the capital market. In other words,
investors who want safety and steady returns should not involve themselves in the
capital market because it is not a place for a weak hearted person.
b. Additional Costs
- Furthermore, as far as the capital market is concerned, there are many additional costs.
For example, brokerage fees, transaction fees, taxes and so on which makes trading in
the capital market very expensive. However, compared to bank fixed deposits that do
not have such costs. Therefore, it will bring an additional burden on people who are
investing in capital markets.
Similarities
Both the money market and capital market are essential components of the
international financial market. So, both markets allow investors to buy debt securities, and
financial products such as bonds that participants purchase and the issuer promises to repay.
After that, both markets are largely invisible. Most trades take place through computerized
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trading platforms, not on physical markets or exchanges. Next, businesses and governments
rely on these two markets to raise capital to pay for operations or expanding activities.
Differences
First difference is the capital market is the trade in long-term assets instead the money
market is the trade in short-term debt. This is because the capital market includes trade-in
bonds and both stocks. Bonds and both stocks are long-term assets and these are all bought
by financial institutions, individual investors and professionals.
Second, money markets are the constant flow of cash between governments,
companies, banks and financial institutions that lend for as little as overnight, or no more than
a year. Moreover, capital markets are better organized than money markets. Besides that,
liquidity in capital markets is low, while liquidity in money markets is relatively high.
Another difference is due to the relatively high risk of capital markets and the high liquidity
and low maturity of money markets, the risk of money market instruments is low.
The next difference is in economies where capital markets stabilize the economy due
to savings mobilization and long-term financing. So capital markets generally offer higher
returns, while money markets offer lower returns on investment.
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