Derivatives in emerging markets: a South African focus
- Authors: Schwegler, Stefan
- Date: 2010
- Subjects: Derivative securities , South Africa -- Economic conditions -- 21st century
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:9281 , http://hdl.handle.net/10948/1401 , Derivative securities , South Africa -- Economic conditions -- 21st century
- Description: This research focused on derivative instruments which are financial securities whose values are derived from the values of underlying assets, such as shares, bonds, currencies or interest rates. Derivatives are predominantly used to manage risks in portfolios (hedging) and trading (speculation). Derivatives have been used for centuries and have developed into one of the largest global financial markets. The most common derivative instruments available to investors are options, futures, swaps and contracts for difference, as they are fairly easy to understand and apply. During the 2008/2009 global financial crisis derivatives, especially credit derivatives, made headlines and although they did not cause the crisis, they accelerated it. Furthermore, the 2008/2009 financial crisis also increased the negative sentiments many investors have towards derivatives. As a result of the crisis the growth in the global derivatives market came to a halt for the first time in decades. In light of the above, the primary objective of this study was to gain a deeper understanding of derivatives trading in emerging markets, especially in the South African context, as these financial securities are very useful portfolio management tools. The aim of this study was to describe the current state of the South African derivatives market; to investigate the role that derivative instruments played in the 2008/2009 global financial crisis; and to identify the variables influencing investors’ decisions whether or not to include derivatives in their portfolios. Given the nature of the problem stated a qualitative or phenomenological research paradigm was adopted. This paradigm was deemed suitable given the exploratory nature of the research. Primary and secondary data for this study were obtained through semi-structured personal interviews with 21 experts in the South African financial services industry and through an extensive literature review, respectively. A research instrument, based on the literature review was developed to facilitate the interviewing process. The results of the empirical investigation show that although the majority of respondents use derivative instruments in managing their portfolios, the South African derivatives market is still in its development phase. Many investors do not use derivatives frequently as they lack knowledge about derivative instruments, receive uncompetitive prices, are restricted by rules and regulations as well as investment mandates. Fourteen variables were identified as having a possible impact on investors' decisions whether or not to use derivatives in their portfolios. The five variables identified in the empirical investigation as being the most important, were the level of information available and the transparency of price determination; investor’s knowledge of different derivative instruments; investor’s level of risk tolerance; the level of liquidity in the market; and investor's knowledge and familiarity with financial markets. The findings of this study suggest that financial institutions, selling and trading derivative instruments, should concentrate on these five variables to make derivatives more attractive investment alternatives for investors. In order for South African investors to consider derivatives as suitable investments more often, it is strongly recommended to educate investors better about these products and decrease the negative sentiments investors have towards derivatives. This should be done by showing and explaining to investors that derivatives are useful hedging and portfolio management tools. It is necessary to state the dangers and benefits of derivatives, as well as the features differentiating them. Financial institutions trading derivative instruments, local education facilities (e.g. universities) and financial markets related organisations should educate investors by providing various educational tools, such as online courses, booklets, seminars or presentations about derivative products on offer. Furthermore, it is highly recommended to make derivative markets more transparent through adequate and appropriate regulations. In that, investors are better protected from counterparty risks and trade in a safer environment due to clearing houses.
- Full Text:
- Date Issued: 2010
- Authors: Schwegler, Stefan
- Date: 2010
- Subjects: Derivative securities , South Africa -- Economic conditions -- 21st century
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:9281 , http://hdl.handle.net/10948/1401 , Derivative securities , South Africa -- Economic conditions -- 21st century
- Description: This research focused on derivative instruments which are financial securities whose values are derived from the values of underlying assets, such as shares, bonds, currencies or interest rates. Derivatives are predominantly used to manage risks in portfolios (hedging) and trading (speculation). Derivatives have been used for centuries and have developed into one of the largest global financial markets. The most common derivative instruments available to investors are options, futures, swaps and contracts for difference, as they are fairly easy to understand and apply. During the 2008/2009 global financial crisis derivatives, especially credit derivatives, made headlines and although they did not cause the crisis, they accelerated it. Furthermore, the 2008/2009 financial crisis also increased the negative sentiments many investors have towards derivatives. As a result of the crisis the growth in the global derivatives market came to a halt for the first time in decades. In light of the above, the primary objective of this study was to gain a deeper understanding of derivatives trading in emerging markets, especially in the South African context, as these financial securities are very useful portfolio management tools. The aim of this study was to describe the current state of the South African derivatives market; to investigate the role that derivative instruments played in the 2008/2009 global financial crisis; and to identify the variables influencing investors’ decisions whether or not to include derivatives in their portfolios. Given the nature of the problem stated a qualitative or phenomenological research paradigm was adopted. This paradigm was deemed suitable given the exploratory nature of the research. Primary and secondary data for this study were obtained through semi-structured personal interviews with 21 experts in the South African financial services industry and through an extensive literature review, respectively. A research instrument, based on the literature review was developed to facilitate the interviewing process. The results of the empirical investigation show that although the majority of respondents use derivative instruments in managing their portfolios, the South African derivatives market is still in its development phase. Many investors do not use derivatives frequently as they lack knowledge about derivative instruments, receive uncompetitive prices, are restricted by rules and regulations as well as investment mandates. Fourteen variables were identified as having a possible impact on investors' decisions whether or not to use derivatives in their portfolios. The five variables identified in the empirical investigation as being the most important, were the level of information available and the transparency of price determination; investor’s knowledge of different derivative instruments; investor’s level of risk tolerance; the level of liquidity in the market; and investor's knowledge and familiarity with financial markets. The findings of this study suggest that financial institutions, selling and trading derivative instruments, should concentrate on these five variables to make derivatives more attractive investment alternatives for investors. In order for South African investors to consider derivatives as suitable investments more often, it is strongly recommended to educate investors better about these products and decrease the negative sentiments investors have towards derivatives. This should be done by showing and explaining to investors that derivatives are useful hedging and portfolio management tools. It is necessary to state the dangers and benefits of derivatives, as well as the features differentiating them. Financial institutions trading derivative instruments, local education facilities (e.g. universities) and financial markets related organisations should educate investors by providing various educational tools, such as online courses, booklets, seminars or presentations about derivative products on offer. Furthermore, it is highly recommended to make derivative markets more transparent through adequate and appropriate regulations. In that, investors are better protected from counterparty risks and trade in a safer environment due to clearing houses.
- Full Text:
- Date Issued: 2010
The impact of economic downturn on black economic empowerment and banks
- Authors: Daniels, Sinclair Lonwabo
- Date: 2010
- Subjects: South Africa -- Economic conditions -- 21st century , South Africa -- Economic conditions , Business enterprises, Black -- South Africa , Blacks -- Employment -- South Africa , Employee empowerment -- South Africa , Banks and banking -- South Africa
- Language: English
- Type: Thesis , Masters , MBA
- Identifier: vital:8620 , http://hdl.handle.net/10948/1505 , South Africa -- Economic conditions -- 21st century , South Africa -- Economic conditions , Business enterprises, Black -- South Africa , Blacks -- Employment -- South Africa , Employee empowerment -- South Africa , Banks and banking -- South Africa
- Description: The purpose of this treatise is to ascertain the impact of economic downturn on Black Economic Empowerment (BEE) and Banks. This has been sparked by the huge speculations in the market as to what will happen to BEE and how will the banks cope in general with the impact of this scourge. It is imperative to understand the influence of the 2008+ economic downturn on socio-economic reconstruction and development in South Africa and the black economic empowerment and its funding mechanisms. The treatise has two phases the, namely the theoretical phase and a bit of narrative phase. In the theoretical phase the research study interrogates what the literature review reveals about the economic downturn, BEE as well as performances of different banks across the world. This shows the economic impact that the banks have had to endure during the economic downturn. This resulted in stock markets losing their value. The dividend earners were significantly affected including a sizeable number of BEE companies. The BEE companies are perceived to be too reliant on debt on to finance their deals and this treatise will look at various options of financing a BEE deal and what is deem to the most suited financing structure. The narrative phase involves semi-structured interviews that were conducted in order to ascertain the real impact that South African were faced with and how they have managed to steer clear of the turbulent waters. This also looked at how the BEE consultant views the current occurrences in the market.
- Full Text:
- Date Issued: 2010
- Authors: Daniels, Sinclair Lonwabo
- Date: 2010
- Subjects: South Africa -- Economic conditions -- 21st century , South Africa -- Economic conditions , Business enterprises, Black -- South Africa , Blacks -- Employment -- South Africa , Employee empowerment -- South Africa , Banks and banking -- South Africa
- Language: English
- Type: Thesis , Masters , MBA
- Identifier: vital:8620 , http://hdl.handle.net/10948/1505 , South Africa -- Economic conditions -- 21st century , South Africa -- Economic conditions , Business enterprises, Black -- South Africa , Blacks -- Employment -- South Africa , Employee empowerment -- South Africa , Banks and banking -- South Africa
- Description: The purpose of this treatise is to ascertain the impact of economic downturn on Black Economic Empowerment (BEE) and Banks. This has been sparked by the huge speculations in the market as to what will happen to BEE and how will the banks cope in general with the impact of this scourge. It is imperative to understand the influence of the 2008+ economic downturn on socio-economic reconstruction and development in South Africa and the black economic empowerment and its funding mechanisms. The treatise has two phases the, namely the theoretical phase and a bit of narrative phase. In the theoretical phase the research study interrogates what the literature review reveals about the economic downturn, BEE as well as performances of different banks across the world. This shows the economic impact that the banks have had to endure during the economic downturn. This resulted in stock markets losing their value. The dividend earners were significantly affected including a sizeable number of BEE companies. The BEE companies are perceived to be too reliant on debt on to finance their deals and this treatise will look at various options of financing a BEE deal and what is deem to the most suited financing structure. The narrative phase involves semi-structured interviews that were conducted in order to ascertain the real impact that South African were faced with and how they have managed to steer clear of the turbulent waters. This also looked at how the BEE consultant views the current occurrences in the market.
- Full Text:
- Date Issued: 2010
The term structure of interest rates and economic activity in South Africa
- Authors: Shelile, Teboho
- Date: 2007
- Subjects: Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:994 , http://hdl.handle.net/10962/d1002729 , Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Description: Many research papers have documented the positive relationship between the slope of the yield curve and future real economic activity in different countries and different time periods. One explanation of this link is based on monetary policy. The forecasting ability of the term spread on economic growth is based on the fact that interest rates reflect the expectations of investors about the future economic situation when deciding about their plans for consumption and investment. This thesis examined the predictive ability of the term structure of interest rates on economic activity, and the effects of different monetary policy regimes on the predictive ability of the term spread. The South African experience offers a unique opportunity to examine this issue, as the country has experienced numerous monetary policy frameworks since the 1970s. The study employed the Generalised Method Moments technique, since it is considered to be more efficient than Ordinary Least Squares. Results presented in this thesis established that the term structure successfully predicted real economic activity during the entire research period with the exception of the last sub-period (2000-2004) when using the multivariate model. In the periods of financial market liberalisation and interest rates deregulation the term structure was found to be a better predictor of economic activity in South Africa. These findings emphasise the importance of considering the prevailing economic environment in testing the term structure theory.
- Full Text:
- Date Issued: 2007
- Authors: Shelile, Teboho
- Date: 2007
- Subjects: Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:994 , http://hdl.handle.net/10962/d1002729 , Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Description: Many research papers have documented the positive relationship between the slope of the yield curve and future real economic activity in different countries and different time periods. One explanation of this link is based on monetary policy. The forecasting ability of the term spread on economic growth is based on the fact that interest rates reflect the expectations of investors about the future economic situation when deciding about their plans for consumption and investment. This thesis examined the predictive ability of the term structure of interest rates on economic activity, and the effects of different monetary policy regimes on the predictive ability of the term spread. The South African experience offers a unique opportunity to examine this issue, as the country has experienced numerous monetary policy frameworks since the 1970s. The study employed the Generalised Method Moments technique, since it is considered to be more efficient than Ordinary Least Squares. Results presented in this thesis established that the term structure successfully predicted real economic activity during the entire research period with the exception of the last sub-period (2000-2004) when using the multivariate model. In the periods of financial market liberalisation and interest rates deregulation the term structure was found to be a better predictor of economic activity in South Africa. These findings emphasise the importance of considering the prevailing economic environment in testing the term structure theory.
- Full Text:
- Date Issued: 2007
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