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NO. CONTENT PAGES

1.0 ACKNOWLEDGEMENT 3

2.0 MARKET PLAYERS IN NEGOTIABLE INSTRUMENT 4

OF DEPOSITS

2.1 REASON OF NEGOTAIBLE INSTRUMENT OF 4-5

DEPOSITS’S ISSUANCE

2.2 BENEFITS OF NEGOTIABLE INSTRUMENT OF 6

DEPOSITS

2.3 CHARACTERISTICS OF NEGOTIABLE 7-8

INSTRUMENT OF DEPOSITS

2.4 MATURITY PERIOD OF NEGOTIABLE 8

INSTRUMENT OF DEPOSITS

3.0 CONCLUSION 9

4.0 REFERENCES 10

5.0 APPENDICES 11-12

TABLE OF CONTENT

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1.0 ACKNOWLEDGEMENT

We want to express our appreciation to everyone who aided us in finishing this report;
without their help and guidance, it would not have been achievable. We express our
gratitude to Madam for her helpful support, guidance, stimulating ideas, and encouraging
throughout the fabrication process and assignment completion. We also genuinely
appreciate you taking the time to proofread and fix our numerous errors.

We also want to express our gratitude for UiTM's vital involvement in providing a space
for us to hold conversations in order to finish this assignment. Finally, but just as
importantly, we truly thank everyone who helped out directly or indirectly since without
them, we could not have succeeded. Finally, I would like to thank all of my teammates for
their dedication in carrying out this report successfully.

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 2.0 MARKET PLAYERS IN NEGOTIABLE INSTRUEMENT OF DEPOSITS

Numerous market participants add to the complexity and effectiveness of the

complicated environment around negotiable instruments of deposits (NIDs). In addition
to being the main issuers, banks and other financial institutions are essential architects
since they are the key sources of capital raised via instruments such as certificates of
deposit (CDs). Individual individuals, huge organizations, and institutional investors all
participate in the market with the goal of protecting their money while simultaneously
looking for ways to earn attractive interest rates. Brokers and dealers perform the
intermediary roles by enabling the smooth purchase and sale of NIDs in the secondary
market, promoting price discovery and liquidity.

Regulatory agencies play a crucial role in the market by closely monitoring the issuing
and trading of NIDs. They ensure that market activities comply with financial regulations,
thereby fostering transparency and protecting the interests of investors. To properly
manage public finances or as part of their larger monetary policy operations, central
banks and treasury departments may also enter the market and issue negotiable
instruments. This dual functionality deepens the market and influences the dynamics of
monetary policy as well as the larger fiscal scene.

The overall dynamics of the market for negotiable instruments in deposits are shaped by
the combined actions of these various market participants. Through their coordinated
efforts, they create, distribute, and trade these financial instruments like a well-tuned
orchestra, each member adding to the stability and resilience of the larger financial
system. These market participants adjust as economic conditions change, affecting the
market's ebb and flow as a result of shifting regulatory landscapes and demand.

2.1 REASONS OF NEGOTIABLE INSTRUMENT OF DEPOSITS’S ISSUANCE

The procedure of issuing certificates of deposit (CDs), or negotiable instruments of

deposit (NIDs), in Malaysia is complex and influenced by a number of financial and
economic factors. First of all, issuing NIDs is a crucial component of banks' and other
financial organizations' capital-raising activities. These banks draw capital from a wide
spectrum of investors and consumers by issuing these instruments, giving them a safe
and interest-bearing place to put their excess funds. These financial institutions' capital
bases are greatly strengthened by the money raised through NID issuance, which gives
them the ability to lend money, make investments, and engage in other financial
operations.

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In Malaysia, Negotiable Instruments of Deposits (NIDs) have become more than just a
means of bank funding. They are now a desirable option for individual, institutional, and
corporate investors to make investments. NIDs are a desirable choice for individuals
looking to retain liquidity while balancing risk and return since their set interest rates offer
the desired consistency and predictability. While companies and institutional investors
enjoy the consistency of predetermined returns, individual investors favor the certainty of
returns, particularly in unpredictable markets. The maturity time flexibility of NIDs adds to
their desirability by enabling investors to match their investments with particular financial
objectives. The combination of fixed interest rates, flexibility in maturity dates, and
liquidity makes NIDs a valuable and adaptable element of investment portfolios that may
satisfy a wide range of investor preferences within the Malaysian financial system.

Furthermore, the issuing of NIDs is closely linked to Malaysia's monetary policy

framework, which is managed by Bank Negara Malaysia, the country's central bank. The
central bank can control the money supply, affect interest rates, and oversee the state of
the economy as a whole by issuing NIDs. The central bank can influence borrowing
costs, inflation, and economic stability by changing the interest rates on NIDs.

NIDs may also be issued by government treasuries as a component of a larger cash

management plan. These financial instruments function as a provisional source of
funding for the government, supporting efficient financial management and helping to
meet short-term cash flow requirements.

Moreover, these instruments can also be actively traded in the secondary market due to
their negotiable nature. In addition to giving investors a way to sell their NIDs before they
mature, secondary market trading also improves the efficiency and liquidity of the
market.

With everything considered, the issuing of NIDs in Malaysia acts as a dynamic process
that helps the government manage cash, supports monetary policy goals, meets the
capital needs of financial institutions, and cultivates a liquid secondary market. The
interdependence of these variables highlights the importance of NIDs in forming
Malaysia's financial environment.

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2.2 BENEFITS OF NEGOTIABLE INSTRUMENT OF DEPOSITS

Negotiable Instruments of Deposits (NIDs), like certificates of deposit (CDs), have many
advantages for issuers and investors that go well beyond stability and predictability. NIDs
are especially attractive during uncertain economic times since their set interest rates
offer a stable source of income as well as protection against market swings. For risk-
averse investors and those looking for steady income streams for retirement and
financial planning, this feature is extremely beneficial.

Moreover, by introducing low-risk fixed-income instruments, NIDs are essential to

portfolio diversification. A balanced portfolio that aids in managing overall risk exposure
can be attained by investors by include NIDs in their investment mix. This becomes
important when the market is erratic because the consistent returns from NIDs can offset
the portfolio's intrinsic volatility from other, more erratic assets.

NIDs are made more appealing by the liquidity alternatives they provide, particularly
through secondary market trading. With the help of this feature, investors can access
cash prior to the instruments' maturity, giving them the financial flexibility to adapt to
changing circumstances or take advantage of new investment opportunities. This
liquidity feature gives NIDs an extra degree of adaptability, enabling investors to modify
their plans in response to shifting market conditions and changing financial requirements.

Additionally, NIDs' safety and security—which are frequently provided by respectable

financial organizations and occasionally insured—add to their allure. Because of this,
NIDs are a desirable option for investors who place a high value on capital preservation
and the dependability of their main investment.

NIDs provide the issuer with a dependable and affordable source of capital. By issuing
NIDs, banks and other financial organizations can raise capital to support lending
operations and other financial activities as well as to meet regulatory capital
requirements. NIDs' dual role as a funding source for financial institutions and an
investment vehicle for people adds to their adaptability and significance in the larger
financial scene.

In conclusion, Negotiable Instruments of Deposits are versatile instruments that meet a

wide range of investor preferences and issuer funding needs because of their
combination of stable returns, diversification advantages, liquidity options, and safety

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 features. As such, they are essential parts of well-rounded investment and financial
strategies.

2.3 CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS OF DEPOSITS (NIDs)

Negotiable instruments are an important part of modern trade because they provide a flexibl
e and effective way of transferring financial obligations. Promissory notes, bills of exchange,
and cheques are examples of these instruments. All of them have unique properties that ma
ke them essential in facilitating transactions, easing the movement of funds, and raising eco
nomic activity.

Firstly, the characteristics of NIDs are freely transferable. Negotiable instruments must be fre
ely transferable from one person to another person without any formality, such as registratio
n. This feature enhances the liquidity and marketability of negotiable instruments. The proper
ty in the instruments can be transferred by mere delivery if it is payable to the owner. The val
id transfer of the instrument is typically achieved by physically possessing or delivering it. On
the other hand, order instruments require endorsement by the payee to affect a valid transfer.

Next, it has a fixed maturity date. The feature gives parties involved alternatives for payment
schedules, allowing for customization based on specific agreements and conditions. The pay
ments must be at a fixed or on a determinable future date. Before providing the instrument fo
r payment, the holder must wait until that specific date arrives.

Furthermore, NIDs have legal protection. This means that the title of the holder must be free
from all defects. A person taking the instruments in good faith and for value is known as the
holder in due course. During the course of transferring negotiable instruments, any defect in
title will not affect of recovery of money to the holder in due course. This feature is designed
to promote trust and efficiency in the use of negotiable instruments in a variety of financial an
d economic environments.

Other than that, the NIDs interest rates are influenced by interbank rates. Normally bigger de
posits like RM550,000, banks tend to offer better rates. Usually, a larger principal may receiv
e a higher interest rate. NIDs also will be no withholding tax for placement made by compani
es but there will be a 5% withholding tax for individuals.

The next one is, that it is an active secondary market that allows an investor to resell at any
point before maturity. This relates to the liquidity and tradability of negotiable instruments, wh
ich is an important characteristic in financial markets. The secondary market is a marketplac

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e where previously issued financial securities, such as negotiable instruments such as bonds
and some forms of promissory notes, are purchased and traded among investors.

Lastly, the notice of assignment need not be given to debtors. A notice of assignment in the c
ontext of debt or financial instruments is a statement to the debtor advising them that the righ
ts to collect a debt or payment obligation have been assigned or transferred to a new party.
The lack of a notice requirement protects the debtor's privacy. Because customers are not di
rectly involved in the transfer process, their information remains private, and they can contin
ue to do business with the new holder or assignee as usual.

2.4 THE MATURITY PERIOD OF NEGOTIABLE INSTRUMENTS OF DEPOSITS (NIDs)

The tenure duration, often known as the maturity period, is an important feature of negotiabl
e instruments, influencing payment timing and the overall dynamics of financial transactions.
The tenure ranges from 1 month to 5 years or 10 years with the principal and interest payabl
e upon maturity. Maturity is the date on which negotiable instruments become payable. Ther
e are two types, payable on demand and after a specified period. NIDs have short-term and l
ong-term maturity periods. These instruments are issued under 4 broad categories.

Firstly, Short-term Negotiable Instruments of Deposits (SNID) with maturity between 90 to 36

4 days. For example, commercial paper, certificates of deposit (CDs), and treasury bills. Cor
porations and financial organizations usually issue commercial paper. Maturities can range fr
om a few days to several months, making it an adaptable short-term financing option. On the
maturity date, the issuing institution pays interest at the set coupon rate.

Secondly, Long-term Negotiable Instruments of Deposits (LNID) with maturity between 1 to 5

years. This means LNID can be issued for a minimum maturity period of 12 calendar months.
On the other hand, a maximum maturity period of 60 calendar months. Government bonds a
re one of the types of LNID. Government bonds are issued by sovereign governments and ar
e generally considered low-risk investments due to their stability. Investors who buy governm
ent bonds are effectively lending money to the government in exchange for periodic interest
payments and the return of principal at maturity.

Next, Zero-coupon Negotiable Instruments of Deposits (ZNID) with maturity ranges from a m
inimum of 3 months to a maximum of 60 months. ZNID does not pay interest and is sold at a
discount. Zero-coupon instruments can be purchased at an affordable price compared to thei
r face value. The implied interest or return that investors will get at maturity is represented by
the difference between the issue price and the face value.

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Lastly, Floating-rate Negotiable Instruments of Deposits (FRNID) with a maturity of 1 year. T
he range from a minimum of 12 months to a maximum of 60 months. FRNID is unique becau
se the interest rate is not fixed but instead varies over time, and the interest payments are m
ade every 3 months or 6 months at the coupon or interest rate that is dependent on Kuala Lu
mpur Inter Bank Offers (KLIBOR).

3.0 CONCLUSION

In summary, a thorough examination of Negotiable Instruments of Deposit (NIDs)

demonstrates their complex function in contemporary trade and finance. A dynamic and
productive environment is created in the market for NIDs by the intricate interactions of
major participants, which include banks, financial institutions, investors, brokers, and
regulatory agencies. Issuing NIDs is a complex procedure that is essential to capital raising,
financial stability, and investment appeal in Malaysia. The fact that government treasuries
and central banks are involved highlights the wider influence of NIDs on monetary policy and
public finance management.

Beyond stability and predictability, NIDs, and certificates of deposit (CDs in particular), offer
a number of advantages. They appeal to risk-averse investors and those looking for steady
income streams because of their fixed interest rates, which make them appealing in erratic
economic times. Adding NIDs to a portfolio greatly increases its diversification, which helps
maintain a balanced and risk-aware investing approach. Their attractiveness is increased by
the flexibility of their maturity dates, which enables investors to match their investments with
certain financial goals.

Moreover, NIDs' negotiable character encourages active trading in the secondary market,
which improves financial markets' liquidity and efficiency. The research also emphasizes
how crucial privacy protection is to the transfer process, enabling debtors to easily carry on
business with the new holder. NIDs' varied maturity periods—which include zero-coupon,
long-term, short-term, and floating-rate options—accommodate different investor time
horizons and preferences.

In modern banking and trade systems, negotiable instruments of deposits are essentially
adaptable and essential instruments that support economic activity, financial flexibility, and
the overall resilience of the broader financial system. Because of their distinct qualities and
wide range of uses, NIDs are positioned as crucial elements of all-encompassing financial
and investment strategies, demonstrating their relevance and flexibility in the dynamic
financial landscape.

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4.0 REFERENCES

1. Book

Bacha, O. I. & Mirakhor, A. (2019). Islamic Capital Markets: A Comparative Approach

(Second Edition). World Scientific Publishing Company.

2. Journal

Llewellyn, K. N. (May 1944). Meet Negotiable Instruments. Columbia Law Review, vol. 44,
no. 3, p. 299, https://doi.org/10.2307/1117409

3. Websites

InTheKnow: Retail Negotiable Instruments of Deposit. (n.d.). The Edge Malaysia. Retrieved
Dec 18, 2023, https://theedgemalaysia.com/article/intheknow-retail-negotiable-instruments-
deposit

Negotiable Certificate of Deposit. (n.d.). Finance Unlocked. Retrieved Dec 18, 2023,
https://financeunlocked.com/discover/glossary/negotiable-certificate-of-deposit

Negotiable Instruments of Deposits (NID) / Islamic Structured Product. (n.d.). Hong Leong
Bank. Retrieved 8 Jan, 2024,
https://www.hlb.com.my/en/personal-banking/investments/investment-and-financing-
products/RM50000-and-above/floating-rate-negotiable-instruments-of-deposits.html/

Other Instruments. (n.d.). CIMB. Retrieved Jan 8, 2024,

https://www.cimb.com.my/en/business/solutions-products/deposit-investments/other-
instruments.html

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5.0 APPENDICES

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