Question 2

Depository financial institutions in Malaysia able to purchase the long term and risky financial assets from depositors, then, finance these purchased with short term and safe financial instruments.

Required:

(a)How could these financial institutions in Malaysia afford to conduct for the above process? (2 marks)

(b)What is the consequences if the whole process go wrong?(12 marks)

(c)How to determine the price of financial instruments that are currently trading in the financial markets? (2 marks)

(d)Which of the financial instruments are more risky when comparing the period of time and cash flow for the investment in Malaysia? Why?(9 marks)

[Total: 25 Marks]