Question

Analyzing Abu Dhabi stock Exchange Markets (ADX) and Dubai Financial Market (DFM) The Project problem:

1. Analyze the Abu Dhabi stock Markets and Dubai Financial Market by describing the nature and the development of these two Financial markets in details.

2. Explain the difference between types of financial markets used in UAE, and how these differences are used for trading securities and the types of securities traded on those markets.

3.   Evaluate the advantages and disadvantages of long-term capital market for rising corporate finance.

Answer 1

Answer1.

Securities iand iCommodities iAuthority iis ian iindependent ibody. iAbu iDhabi iSecurities iExchange iand iDubai iFinancial iMarket ioperate iunder iit.

The iUAE iestablished iSecurities iand iCommodities iAuthority i(SCA) iin i2000 ito iachieve ithe ifollowing iobjectives:

1. To iprovide ithe iopportunity ito iinvest isavings iand ifunds iin iSecurities iand iCommodities iin ia imanner ithat iserves ithe iinterest iof ithe inational ieconomy, isecures ithe iintegrity iand iaccuracy iof itransactions, iensures iinteraction iof ithe iforces iof isupply iand idemand iin iorder ito idetermine iprices iand iprotection iof iinvestors iby iestablishing ithe ibases ifor isound iand ijust idealings ibetween ithe ivarious iinvestors

2. To idevelop iinvestment iawareness iby iconducting istudies iand ipresenting irecommendations

3. To iwork ito isecure ifinancial iand ieconomic istability

Two imain ifinancial isecurities iexchange imarkets ioperate iin ithe iUAE iunder ithe iSecurities iand iCommodities iAuthority i(SCA):

i i i i i i i i i i i i i i i i i i i i iAbu iDhabi iSecurities iExchange

i i i i i i i i i i i i i i i i i i i i iDubai iFinancial iMarket

Both imarkets iare ilinked ito ithe iEmirates iSecurities iMarket i(ESM).

The iUAE's ifinancial imarkets ideal iprimarily iin iequities, isecurities, ibonds, ifutures, imutual ifunds, icommodities, icurrencies, imetals, istones, iderivatives, iand iSukuk i(Islamic ibonds).

Abu iDhabi iSecurities iExchange i(ADX)

ADX iis ia istock iexchange iin iAbu iDhabi, istarted iin i2000 iwith ithe ipurpose iof iproviding ifunds iinvestment iopportunities iin isecurities ifor ithe ibenefit iof ithe inational ieconomy.

It iaims iat ideveloping iinvestment iawareness ito iensure ithat isavings iare iinvested iin iproductive isectors, iand ito imaintain ifinancial iand ieconomic istability. iADX ideals iin iequities, ifunds iand ibonds.

dubai iFinancial iMarket i(DFM)

Dubai iFinancial iMarket i(DFM) iwas iestablished ias ia ipublic iinstitution iin i2000. iAs idecided iby ithe iExecutive iCouncil iDecree iof i2005, iDFM iwas iset iup ias ia iPublic iJoint iStock iCompany. i20 iper icent iof iDFM's ishares ioffered ifor ipublic isubscription; iand ithat iwas ithe ifirst iof iits ikind iin ithe iregion. iIt iis ithe ifirst ifinancial imarket iin ithe iworld ito icomply iwith iIslamic iSharia irules.

DFM ideals iin iequity iinstruments, idebt iinstruments, iExchange iTraded iFunds i(ETFs) iand isecurities ilending iand iborrowing.

Answer i2. i iTypes iof ifinancial imarkets iused iin iUAE

UAE ifinancial imarkets

1. Abu iDhabi iSecurities iExchange i(ADX)

ADX iis ia istock iexchange iin iAbu iDhabi, istarted iin i2000 iwith ithe ipurpose iof iproviding ifunds iinvestment iopportunities iin isecurities ifor ithe ibenefit iof ithe inational ieconomy.

It iaims iat ideveloping iinvestment iawareness ito iensure ithat isavings iare iinvested iin iproductive isectors, iand ito imaintain ifinancial iand ieconomic istability. iADX ideals iin iequities, ifunds iand ibonds.

2. Dubai iFinancial iMarket i(DFM)

Dubai iFinancial iMarket i(DFM) iwas iestablished ias ia ipublic iinstitution iin i2000. iAs idecided iby ithe iExecutive iCouncil iDecree iof i2005, iDFM iwas iset iup ias ia iPublic iJoint iStock iCompany. i20 iper icent iof iDFM's ishares ioffered ifor ipublic isubscription; iand ithat iwas ithe ifirst iof iits ikind iin ithe iregion. iIt iis ithe ifirst ifinancial imarket iin ithe iworld ito icomply iwith iIslamic iSharia irules.

DFM ideals iin iequity iinstruments, idebt iinstruments, iExchange iTraded iFunds i(ETFs) iand isecurities ilending iand iborrowing.

3. Dubai iInternational iFinancial iCentre i(DIFC)

DIFC iis ia ifree izone iestablished iin i2002 iby iDubai iGovernment ito iprovide iphysical, imarket iand ifinancial iinfrastructure irequired ito iset iup iand ioperate ia ithriving icommodities imarketplace. iSeveral ileading ibanks, iasset imanagement icompanies, iinsurance icompanies, ilaw iservices iand iconsulting icompanies ihave iset iup ioffices iin iDIFC. iDIFC iaims ito iestablish iDubai ias ithe iglobal ifinancial ihub.

4. Dubai iMulti iCommodities iCentre i(DMCC)

DMCC istarted iin i2002 ias ia ipart iof iJumeirah iLakes iTowers ifree izone iand ia istrategic iinitiative iof ithe iDubai iGovernment iwith ithe ipurpose iof iproviding iphysical, imarket iand ifinancial iinfrastructure irequired ito iset iup iand ioperate ia ithriving icommodities imarketplace.

DMCC itrades iin ifour imain icommodity igroups: igold, idiamond, ipearl iand itea.

5. Dubai iPearl iExchange i(DPE)

DPE iis ian iinitiative iof iDMCC ifor isupporting ithe iglobal itrade iof iboth inatural iand ifarmed ipearls.

6. Dubai iDiamond iExchange i(DDE)

DDE iis ia iDMCC iplatform iand ia iDubai iGovernment iinitiative iand ithe ionly ibourse iin ithe iMiddle iEast iaffiliated iwith ithe iWorld iFederation iof iDiamond iBourses i(WFDB).

DDE ihas ia iunique imarket iand iplatform ifor itrading iand iexchange iof idiamonds iand iprecious igems. iLocated iin ithe iAlmas iTower iin iJumeirah iLakes iTowers ifree izone, iit iis ihome ito imany iregional iand iinternational iprecious igems icompanies.

7. Dubai iGold i& iCommodities iExchange i(DGCX)

Dubai iGold i& iCommodities iExchange i(DGCX) icommenced itrading iin iNovember i2005 ias ithe iregion's ifirst icommodity iderivatives iexchange iand ihas ibecome itoday ithe ileading iderivatives iexchange iin ithe iMiddle iEast. iIt ideals iin imetals, icurrencies, ihydrocarbons iand iequities.

DGCX iis ia isubsidiary iof iDubai iMulti iCommodities iCentre i(DMCC). iIt iis ian ielectronic iplatform ifor itrading icommodity iand icurrency iderivatives iand ihas i267 imembers ifrom iall iaround ithe iworld.

8. Dubai iMercantile iExchange i(DME)

DME iwas ilaunched iin iJune i2007 iwith ithe igoal iof ibringing ifair iand itransparent iprice idiscovery iand iefficient irisk imanagement ito ithe iEast iof iSuez. iIt ideals iin ienergy ifutures iand icommodities. iIt ilists ithe iOman iCrude iOil iFutures iContract i(DME iOman) ias iits iflagship icontract, iproviding ithe imost ifair iand itransparent icrude ioil ibenchmark ifor ithe iregion.

9. NASDAQ iDubai

NASDAQ iDubai iis ithe iMiddle iEast's iinternational ifinancial iexchange. iIt icombines iregional iand iinternational iwealth, imaking iit ia iglobally iunique iplatform ifor icompanies ito iraise imoney iand ifor iinvestors ito ifind iexciting iopportunities.

NASDAQ iDubai ilisted icompanies imay itrade itheir isecurities iglobally iwhich igives ian iinstant irecognition iand ivisibility iaround ithe iworld.

NASDAQ ideals iin:

a. equities

b. Sukuk iand iIslamic iproducts

c. conventional ibonds

d. futures iand iderivatives

e. exchange-traded ifunds

f. exchange-traded icommodities

10. Real iEstate iInvestment iTrusts i( iREITs).

NASDAQ iDubai iis ilocated iin iDubai iInternational iFinancial iCentre i(DIFC) iand iregulated iby iDubai iFinancial iServices iAuthority. iDubai iFinancial iMarket iholds itwo-thirds iand iBorse iDubai iholds ione-third iof ithe ishares iin iNASDAQ iDubai.

Answer i3.

iAdvantages iand idisadvantages iof ilong-term icapital imarket ifor irising icorporate ifinance.

Borrowing imoney ito ifinance ithe ioperations iand igrowth iof ia ibusiness ican ibe ithe iright idecision iunder ithe iproper icircumstances. iThe iowner idoesn't ihave ito igive iup icontrol iof ihis ibusiness, ibut itoo imuch idebt ican iinhibit ithe igrowth iof ithe icompany.

i i i i i i i i i i i i i i i i i i i i i i i i i i i i i i iCorporate ibonds iare iused iby imany icompanies ito iraise ifunding ifor ilarge-scale iprojects i- isuch ias ibusiness iexpansion, itakeovers, inew ipremises ior iproduct idevelopment. iThey ican ibe iused ito ireplace ibank ifinance, ior ito iprovide ilong-term iworking icapital.

Advantages iof iissuing icorporate ibonds

Bonds ican ibe ia ivery iflexible iway iof iraising idebt icapital. iThey ican ibe isecured ior iunsecured, iand iyou ican idecide iwhat ipriority ithey itake iover iother idebts. iThey ican ialso ioffer ia iway iof istabilizing iyour icompany's ifinances iby ihaving isubstantial idebts ion ia ifixed-rate iinterest. iThis ioffers isome iprotection iagainst ivariable iinterest irates ior ieconomic ichanges.

Other iadvantages iof iusing ibonds ito iraise ilong-term ifinance iinclude:

1. not idiluting ithe ivalue iof iexisting ishareholdings i- iunlike iissuing iadditional ishares

2. enabling imore icash ito ibe iretained iin ithe ibusiness i- ibecause ithe iredemption idate ifor ibonds ican ibe iseveral iyears iafter ithe iissue idate

Disadvantage iof iissuing icorporate ibonds

There iare ialso isome idisadvantages ito iissuing ibonds, iincluding:

1. regular iinterest ipayments ito ibondholders i- ithough iinterest imay ibe ifixed, ithe iinterest iwill iusually ihave ito ibe ipaid ieven iif iyou imake ia iloss

2. the ipotential ifor iyour ibusiness' ishare ivalue ito ibe ireduced iif iyour iprofits idecline i- ithis iis ibecause ibond iinterest ipayments itake iprecedence iover idividends

3. bondholder irestrictions i- ibecause iinvestors iare ilocking iup itheir imoney ifor ia ipotentially ilong iperiod iof itime, ithey ican iimpose icertain icovenants ior iundertakings ion iyour ibusiness ioperations iand ifinancial iperformance ito ilimit itheir irisk

4. ongoing icontact iwith iinvestors ican ibe isomewhat ilimited iso ichanges ito iterms iand iconditions ior iwaivers ican ibe imore idifficult ito iobtain icompared ito idealing iwith ibank ilenders, iwho itend ito imaintain ia icloser irelationship

5. having ito icomply iwith ivarious ilisting irules iin iorder ito iincrease ithe itradability iof ithe ibonds ilisted ion ian iexchange i- iparticularly, ian iobligation ito imake iinformation ion ithe icompany ipublicly iavailable iat ithe iissue istage iand iregularly iduring ithe ilife iof ithe ibond