Page 28 - Introduction To Investment Management

purpose for this reserve is to protect the interests of customers in the event of an
undesirable risk to the bank.

Furthermore, this accumulated deposit known as the Federal Fund shall be used

as a loan by any bank that has insufficient funds to avoid an overdraft of their reserve
account, hence, to cover their deficiencies in the short-term period and available for

immediate spending. Normally, these loans are made for one day only, that is overnight,
and the rate is known as the Federal Funds Rate.

H. LIBOR / KLIBOR

LIBOR is the acronym for London Interbank Offered Rate (Interbank Lending Rates

at London) and KLIBOR refers to the Kuala Lumpur Inter Bank Offered Rate (Interbank
Lending Rates in Kuala Lumpur). The Kuala Lumpur Interbank Offered Rate is the average

interest rate at which term deposits are offered between prime banks in the Malaysian
wholesale money market or interbank market. It can best be described as a benchmark

for the short-term interest rate on loans that set by the major banks to their borrowers

(other banks) that need funding. In other words, any bank that needs to raise their capital
may borrow from any bank and the interest on loan is based on LIBOR or KLIBOR (if in
Malaysia).

Rate of Return in Money Market Instruments.

As mentioned above, the instruments in the Money Market are a low-risk

investment. Though, it does not mean that the instruments are free from any risk.
Therefore, investors should make thorough and wise judgement and attention in making

decisions on investments of the securities that are discussed earlier. As for rate of return
on investment in these instruments, it is lower than the rate of return on investment in

the Capital Market instruments.

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