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Chapter1:IntroductiontotheFinancial
Markets
1.1Introduction
1.2Marketsinthefinancialsystem
1.3Thedevelopmentoffinancialmarketsandinstruments
1.4ClassificationofFinancialMarkets
1.5RisksofFinancialTransactions
1.6Institutionsinthemarkets
1.7TheroleofthegovernmentandtheSouthAfricanReserve
Bank
1.8Tradinginthemarkets
1.9Factorsinfluencingthefinancialmarkets
1.10Conclusion
1.1Introduction
"Lifeinabundance"isprobablyoneofthegreatestdesiresofmankind.Inbusiness,peoplestrive
tomanagetheirassets(andliabilitiesforthatmatter)toobtainmaximumadvantage,whichthey
believewouldeventuallyleadtotruejoy.Eventheastronomerslooktowardtheheavenstotryand
findexplanationsthatwouldenhanceourlifeonearth.Thebusinessworldcanalmostbe
describedwiththesamephilosophywithwhichArnoA.Penzias,Novelprizewinnerinphysics,
describedtheuniverse:"Astronomyleadsustoauniqueevent,auniversewhichwascreatedout
ofnothing,anddelicatelybalancedtoprovideexactlytheconditionsrequiredtosupportlife."
Thebusinessworldoftodayisalsodelicatelybalancedwithnumerousdeterminantsplayingapart
intryingtoenhancehumanlife.
1.2Marketsinthefinancialsystem
Peoplehavedifferentneeds,andintryingtofulfilltheseneeds,oppositeneedsarematched.
Whereneedsarematchedonalargescale,marketsforthoseneedsdevelop.Marketforcesare
thus:
thesupplyofanitemorservicewherethereis
ademandforthatitemorservice.
Tradingofthatitemorserviceiscreatedthroughapricemechanism.Thepriceisbasedonthe
valueoftheitemorservicetothetraders(buyersandsellers),dependingoncertainmarket
factors.
Therearedifferentmarketsinasystem,suchas
theservicesmarket
theproductsmarket
thefinancialmarkets.
Amarketisnotnecessarilyaphysicalandgeographicallyidentifiableplace,andgoodstradedare
notnecessarilyphysicalgoods.Tradingmighttakeplaceoverthetelephone,andgoodstraded
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mightbeknowledge,etc.Goodstradedinmarketsaretradedthroughapricemechanismwhich
expressestheinteractionofdemandforandsupplyofthesegoodsasavalue.So,forinstance,
thetradingofapplesusesthepricemechanismofamonetaryamount,forexampleR1,20per
apple.
Thedifferentmarketsinthefinancialsystemofacountryarenotisolatedmarkets,buttheyinteract
witheachother.Withelectroniccommunicationandtherevolutionincomputersandcomputer
networks,themarketsoftheworldarebusyinteractingonalargescale.Inasmallcountrylike
SouthAfrica,onecouldsometimesfeellostinthis"universe"ofsuppliesanddemands.As
astronomerBernarddeFontenelle(16571757)putit:"Beholdauniversesoimmense,Iamlost
init.InolongerknowwhereIam."
Theeffectofdifferentmarketsoneachothercan,however,clearlybeseenintheSouthAfrican
context.ThemoneysupplyinSouthAfricais,interalia,influencedbythegoldprice,because
SouthAfricaisanetexporter(seller)ofgold.Ifthegoldpriceshouldincrease,thesupplyof
moneyinthemarketswillincreaseduetomoremoneyflowingintothecountry.Thiscouldleadto
ahigherdemandforproductsintheproductmarketsbecauseoftheavailabilityofmoney.A
higherdemandforproductscouldresultinpricesofproductsgoingup(resultingininflation),which
woulddampenthedemandforproductsandmoney.Thisinteractivecircleofchangesisan
ongoingprocessinmarkets.
1.3Thedevelopmentoffinancialmarketsandinstruments
Thebasicneedsinthefinancialworld,arethefollowing:
theneedtoinvestexcessmoney(supply)
theneedtoborrowmoney(demand)wherethereisashortageofmoney.
Thegovernmentofacountrymight,forinstance,needmoneyforcertainprojects,whilecertain
privatesectorcompaniesorindividualsmighthaveexcessmoneytoinvestinprofitable
investments.The"price"paidformoneyisinterestpaidontheamountborrowed,andtheinterest
rateisthusthepricemechanismusedinfinancialmarkets.
Tomatchdifferentfinancialneedssuchastheneedtoborrowandtheneedtoinvest,
intermediariesaremostlyused,forexample:
whereaninstitutionwantstoinvestacertainsumofmoney,foracertaintime,givingthema
certainyield
anotherinstitutionwantstoborrowacertainamountofmoneyforaperiodatthelowestcost
possible,thelender'sandtheborrower'sdemandsmightdiffer.
Anexamplewouldbe:
EskomneedsR100millionforaperiodofatleast10yearstoerectnewpowerlines
SCMBhasR50millionitwantstoinvestfor7years
InvestechasR50millionitwantstoinvestfor12years.
Anintermediarywouldseektomergethesedifferentneedsanddemandsofborrowersandlenders
throughnegotiationandfinancialinstruments.Acertificatewouldbeissuedtothelendergiving
himtherighttotheinterestpaymentsandtheredemptionamountatexpiryoftheloan.These
instrumentsarecalledsecurities.
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Largefinancialtransactionsinvolvingthelendingandborrowingofmoney(suchastheexample
above),whicharedonethroughintermediariesorasprincipalbythelender,areoftenstructured
andstandardisedregarding:
theamountoftheloanorinvestment
theinterestpaidandreceivedthereon
thetermtoredemptionoftheloan.
Inordertoenhancethemarketabilityandtradabilityofthesesecurities,thesestandardscreatedfor
transactionsareincorporatedintofinancialinstruments.Aborrowingcertificatefromacertain
institution,wheretheinstitutionborrowsthemoneyandgivesthelender(investor)acertificate
promisingtopaytheownerorholderofthecertificateR1millionon1June2008andinterestof
11,00%perannumonR1millionupto1June2008(similarlytotheEskom168certificates),isan
exampleofafinancialinstrument.Acertificaterepresentingthecontractbetweenthelenderand
borrowerisissuedforthedurationoftheloan.Appendix1isanexampleofabond(capitalmarket
instrument)whichisafinancialinstrument.
Instruments(certificates)issuedbytheultimateborrowerarecalledprimarysecurities.
Instrumentsissuedbyintermediariesonbehalfoftheultimateborrowerarecalledindirect
securities.
Themarketforinstruments(alsocalledsecurities)issuedforthefirsttime,iscalledtheprimary
market.Becauseofthestandardisationoftheseinstruments,differentneedsinthemarketsat
differenttimes,anddifferentviewsofeconomicfactors,theseinstrumentsaretradedbetween
institutionsaftertheyhavebeenissuedforthefirsttime.Ifalenderneedshismoneybefore
redemptiondateoftheloan,thelendercouldtradetheloanbysellingthecertificatetoanother
institution.Thebuyeroftheinstrumentpaystheselleranamount(thepresentvalueofthefuture
cashflowsoftheloan),andthebuyerbecomesthenewlender.Themarketwhereinstruments
aretradedsubsequenttothefirstissue,iscalledthesecondarymarket.
Thesecondarymarketinsomeofthesecuritiesisaveryactivemarket.Activitiesinthe
secondarymarkethaveastrongdetermininginfluenceonissuesintheprimarymarketasliquidity,
tradability,marketrates,scaleofdemand,etc.ofspecificinstrumentsarereflectedinthe
secondarymarket.Thevariablesoftheeconomyinthesemarketsareexpressedthroughthe
interestrate(thepricemechanism)determinedinthesecondarymarket(calledthemarketrate),
andthishasaninfluenceontherateandvalueatwhichissuescantakeplaceintheprimary
market.If,forinstance,IhaveR1milliontoinvestandthemarketrateis16%(thismeansthatI
caninvestmymoneyinthemarketat16%)Ihavethefollowingtwochoices:
(ThisexampleignoresthenominalamountofR1millionthattheinvestorwouldreceiveat
redemptionoftheloan.Theinfluenceofthiswillbediscussedinlatersectionsandchapters.)
a)Investinacertificategivingme11%interestperyearindefinitelyonR1million,
b)Investinaninvestmentinthemarketgivingme16%(themarketrate)interestperyearonR1
million.
Theobviouschoiceisb).Iwouldonlyinvestina)ifIcouldgetadiscountonmyinvestment.The
monetaryamountofinterestthatIwouldreceivefromtheinvestmentina)wouldbe11%onR1
millionperyear,thatisR110000peryear.
Forthisamounttogivemeareturnof16%,Iwouldonlybewillingtoinvest:
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R110000/16%=R687500
IfIcouldgetadiscountof(R1000000R687500)R312500onthecertificateina),andonlypay
R687500forthecertificatewhilestillreceiving11%interestonthenominalamountofthe
certificate(R1000000),myyieldontheinvestmentwouldbe:
R110000/687500=16%,
Thesameasoptionb).
Thus,ifthemarketrateinthesecondarymarketis16%,andaninstitutionwantstoissue
certificatesintheprimarymarket,theinstitutionhastopaythemarketrateonhiscertificates
issued,orissuethecertificatesatadiscountiftheratepaidonthecertificate(calledthecoupon
rate)islessthanthemarketrate.Viceversa,iftheratepaidoncertificatesishigherthanthe
marketrate,thesecertificateswouldbeissuedandtradedatapremium.
Thesecondarymarketgivestheinvestortheopportunitytomanagehisportfoliointermsofrisk
andreturnratios,liquidity,etc.Thereturnthattheinvestorreceivesorwantstoreceiveonhis
investment(calledtheyield),canbemanagedwithincertainparameters,andbyusingdifferent
strategiesofbuyingandsellingdifferentinstrumentsandinvestmentsinthesecondarymarket.
1.4ClassificationofFinancialMarkets
Marketscanbeclassifiedintodifferentcategoriesdependingonthecharacteristicofthemarketor
instrumentusedtocreatecategories.Securitiescreatedbyinstitutionsinthemarketsnormally
payaninterestonthenominalamount(theamountshownonthecertificateorcontract).The
interestbearingsecuritiesmarketissplitintothemoneymarketandthecapitalmarket,basedon
thetermtomaturity(thetermlefttoredemptionofthedebt)ofthesecurities.
Thecapitalmarketisthemarketfortheissueandtradeoflongtermsecurities.
Themoneymarketisthatofshorttermsecurities.
Whengoodssuchasfinancialinstrumentsaretradedinamarket,therearecertaindifferences
betweentransactionsdoneinthesemarkets.Thedifferencesintransactionsinthefinancial
marketscanbecategorisedindifferentcategories,twoofwhicharethefollowing:
Thetimingdifferencebetweentheclosingofthetransactionandthedeliveringofthegoods
orsettlementofthetransaction
Thedifferenceincertaintythattheotherpartywillhonourthetransaction.
Inthespotmarket,theclosingofthetransactionandthedeliveryofthegoodstakeplace
simultaneouslyorwithinashorttermtimespanprescribedbythespecificmarket.Uncertainty
aboutdeliveryfromtheotherpartyisverylimited,otherwisenotransactionwouldtakeplace.
Theforwardmarketisthemarketwhereatransactionisclosedinthepresent,andthesettlement
ofthetransactionandthedeliveryofgoodsareinthefuture.Thedeliverydateandthepriceare
determinedattheclosingofthetransaction.Becauseofthetimelapsebetweentheclosingand
thesettlementofthetransaction,theriskthatoneofthepartiesmightnotbeabletodeliveratthe
settlementdateishigherthaninthespotmarket.
Thefuturesmarketissimilartotheforwardmarket,exceptthatinthefuturesmarket,therisksof
settlementandqualityoftheproductareaddressed.Thesametransactionasintheforward
marketwouldbeclosed,withtheadditionofthestandardisationoftheamountofgoods,thequality
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ofthegoodsandguarantee(byanexchange)ofthepaymentofthepriceanddeliveryofgoodsor
cashsettlementofthedifference.
1.5RisksofFinancialTransactions
Borrowingandlendingofmoneycreatecertainrisks,namely
Thattheborrowerwillnotbeabletorepaythemoney
Thatthelenderisreceivingafixedrateonhisinvestmentwhilemarketratesfluctuateinsuch
awaythattheyieldonhisinitialinvestmentisnowbelowcurrentmarketrelatedrates
Thatthevalueofthecapitalinvestedcoulddecreaseduetomovementsinthemarket.
Tolowertheriskofafinancialtransaction,theriskcanbesoldtopeopleorinstitutionsthatare
willingtotakeonthatriskwithoutimmediatelytakingovertheeffectsofthetransaction.The
institutionwillingtobuytheriskassociatedwiththetransactionwouldhavetobecompensatedfor
takingontherisk.Inmonetaryterms,thecompensationfortakingontheriskwould,however,be
lessthanthepossiblemaximumlossassociatedwiththerisk.Thetradingoftheserisks
associatedwithfinancialinstrumentsresultedinthedevelopmentofderivativeproducts.
Tohedgeapositionmeanstoreducetheriskassociatedwithafinancialtransactionorposition,by
sellingtheriskorbytakinganoppositefinancialposition,withtheeffectthatamarketmovement
wouldnotresultinsubstantialfinancialloss.Afinancialpositionwhichisnothedged,iscalledan
openposition.
Thetradingofriskscreatedamarketforthehedgingofrisksinvolvedinfinancialtransactions,
whichisamarketderivedfromtheoriginalfinancialtransaction.Contractsaredrawnupforthese
kindsoftransactionsandbecausethesecontractsarederivedfromtheoriginalfinancial
transaction,theyarecalledderivatives.InapublicationbyPaulEloffoftheSouthAfricanFutures
Exchange,thefollowingdescriptionofderivativesisgiven:
"Derivativessuchasfuturecontractsandoptions,areinstrumentswherebypricerisksare
reallocatedfromthosenotwillingtoaccepttheriskandplacedwiththosewhoarewillingtoaccept
therisk."
1.6Institutionsinthemarkets
Asophisticatedfinancialservicessectorconsistingoflenders,borrowers,financialintermediaries,
financialinstrumentsandfinancialmarkets,hasdifferentinstitutionsparticipatinginthesemarkets.
Certainintermediariesinthefinancialmarketstakeondepositsasprincipal.Theseintermediaries
arecalleddeposittakingintermediaries.Examplesofsuchintermediariesare:
SouthAfricanReserveBank(SARB)(depositsfromselectedclients)
Privatebanks
LandandAgriculturalBank
SAPostOfficeLimited.
Thereareotherintermediariesoperatinginthemarket,whoonlymanagefundsonbehalfofclients
asanagentfortheclient.Theydonottakeondeposits,butbringtogethertheborrowerand
lenderwithsimilarneedsregardingamount,termandrateofthetransaction.Suchanintermediary
iscalledanondeposittakingintermediary.Examplesoftheseintermediariesare:
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Unittrusts
Insurers
Pensionandprovidentfunds
Financecompanies.
Otherinstitutionsandinterestgroupsinthemarketdonotparticipateinthetradingofinstruments
asprincipaltradersbutperformfunctionssuchassupervisionofactivities,regulationofthe
markets,provisionoftradingfacilities,etc.Examplesoftheseinstitutionsandgroupsare:
TheJohannesburgStockExchange
TheSouthAfricanFuturesExchange
TheBondExchangeofSouthAfrica
TheSupervisionDepartmentoftheSARB
TheFinancialServicesBoard.
1.7TheroleofthegovernmentandtheSouthAfricanReserveBank
Thegovernmentofacountry,beingtherulingbody,hastomanageandsupervisetheeconomy,
resourcesandpeopleofthecountry.Inordertomanagetheeconomyandrelatedresources,
economicpoliciesconcerningmarketsandtradeinacountryareused.Themonetarypolicy
concerningthemoneymarketsandmoneytransactionsofacountry.Thishasastronginfluence
onimportsandexportsandthepaymentsystemofacountry.Fiscalpolicyisthepolicyofthe
governmentconcerningthecollectionofmoneythroughtaxes,issuingoffinancialinstruments,etc.
tofundthelevelofexpendituretheydecideonregarding,forexample,education,infrastructure,
etc.Aguidelineofthispolicyisgiveneachyearinthegovernment'sbudget.
OneofthefunctionsoftheSARBistocooperatewiththeMinistryofFinanceinformulatingand
implementingmonetaryandexchangeratepolicy.TheSARBalsoactsasbankertothe
governmentandotherbanksandthusplaysanimportantroleinthemarketsasdecisions
concerninginterestratesoftheSARBaffectallinstitutionsinthemarket.
OtherimportantfunctionsoftheSARBinclude:
Issuingofbanknotesandcoins
Supervisingthecountry'sgoldandforeignexchangereserves.Inthisfunctionitplaysan
importantroleinmaintainingastableexchangerate
Supervisingregisteredbanks
Settlementofclaimsandpaymentsbetweenbanks
Lenderoflastresortforthebanks.
1.8Tradinginthemarkets
Tradingcantakeplaceinamarketwheninformationaboutpricesareexchanged.The
mechanismofpricemeasurementinthemoneymarketsistheinterestrate,becausetheinterest
thattheborrowerpaysisthepricethathehastopayfortheprivilegeofusingthemoneyfora
certaintime.

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Financialinstrumentsarequotedatinterestrates,fromwhichthetransactionamountorthe
amountthatthebuyerwhichthetransactionamountortheamountthatthebuyer(lender)hasto
paytotheseller(borrower),alsocalledtheconsiderationorsettlementamount,isthencalculated.
Priceinmonetaryvalues(theconsiderationpaidforaninstrument)andinterestratemovements
areopposites.Fixedinterestratesecuritiesaretradedatadiscountonthenominalvalueifthe
marketinterestrateishigherthantheinterestrateontheinstrument(calledthecouponrate).
Considerthefollowingexample:
Aninstrumentwithatermtomaturityofoneyear,anominalamountofR1millionwithacoupon
rateof12%willprobablytradeatthefollowingpricesatthebeginningoftheyear:
Ifthemarketrateis15%,theinvestorcouldinvesthismoneyat15%inthemarket.Hewouldwant
tobuytheinstrumentgivingonlyayieldof12%atadiscount,sothatthemoneyheinvestedwould
earnaneffectiveyieldofatleast15%.Thecashflowthathewouldreceiveattheendoftheyear
iftheinterestispaidattheendoftheperiod,is:
Interest:12%ofR1000000=R120000
Capitalamount:
R1000000
Total
R1120000
Thetotalcashflowdiscountedattherequiredyieldof15%foroneyeargivesR973913.Forthe
investortoearn15%onhisinvestment,hewouldbewillingtopayonlyR973913forthe
instrument.
Ifthemarketrateandyieldrequiredbytheinvestordropsto14%theinstrument(usingthesame
calculationmethods)wouldtradeatR982456.Thus,itisclearthatwithafixedinterestand
redemptionpayment,alowermonetaryamount(consideration)wouldbeofferedforaninstrument
iftheyieldgoesup,becausetheinvestorwouldwanttoearnmoreonhisinvestment.Theinterest
rateatwhichtheinstrumentiseventuallytraded,iscalledtheyieldandcoulddifferfromthemarket
ratebecauseofdifferingviews,costs,etc.
Fortradingtotakeplace,abuyerandasellermustgettogetherandnegotiate.Thiscouldtake
placeonaspecificallyallocatedfloor,orbymeansofacommunicationsystemusingcomputer
networksandtelephones,forinstance,theSouthAfricanFuturesExchangeandtheJSE.Wherea
transactiontakesplacewithoutmakinguseofanorganisedexchange,thetransactioniscalledan
"overthecounter"(commonlyknownasOTC)transaction.TheFuturesExchangeandtheJSE
haveinrecentyearsimplementedfullyautomatedelectronictradingsystems,whicheliminate
telephonecallsbetweenbuyersandsellersorbuyingandsellingagentstoalargedegree.
Althoughtransactionsareclosedinnumerousways,theexchangeofmoneyandproductssuchas
contracts,certificates,etc.stilltakesplacebetweenthepartiesofatransaction,andthisiscalled
thesettlementofatransaction.Settlementofthetransactioncantakeplaceatalaterdatethan
thedateofthetransaction.
Owningafinancialinstrumentiscalledalongposition.Ashortpositionisthesellingofafinancial
instrumentwithoutbeingtheownerthereof.Becausethesettlementdatecouldbeafterthe
transactiondate,asellercouldsellsomethinghedoesn'townandbuyitbeforethesettlement
date,tobeabletodeliverittothebuyer.
1.9Factorsinfluencingthefinancialmarkets
Eacheffectivemarkethasasupplyofacertaincommodity,andademandforthatcommodity.
Savings(investments)representthesupplysideinthemoneymarkets,andfinancingneeds,as
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thedemandside.Becauseoftheinteractionbetweenthevariousfinancialcommodities,money
andservicemarketsinacountry,thesimpletheoryofsupplyanddemanddeterminingprices
cannotbeappliedinitsbasicforminthesemarkets.
Thetheoreticalsystemwoulddeterminethattherate(priceformoney)woulddropifthereisa
surplussavings(supply)inthemarket,butiftherearesavingsinthemarketwhicharenotutilised
tofinanceincomemakingactivities,thenationalincomewilleventuallydecline,probablybringing
aboutadeclineintherateofsavingswhichcouldworkagainstthefallininterestrates.
Anotherfactorinfluencingthefinancialmarketsisexpectationsforinstance,ifratesarehigh,with
theexpectationthattheratesaregoingtodeclineinthefuture,thedemandforsecuritiesandthus
thesupplyofmoneywillbehigh,pushinginterestratesdown,andsecuritypricesup.
Expectationsofhigherinflationcouldpushupinterestrates.Pricesofgoodsareexpectedtogo
up,soconsumerstendtobuynowratherthanlater,whichpushesupthedemandforcash
balancesandhikesinterestrates.Interestratesinturnhasaneffectoninflation.Thelevelof
savingsandspendingistoasignificantextentdeterminedbyprevailinginterestrates.
Fiscalpolicydecisionsbythegovernmentalsoaffectthefinancialmarkets.Thedecisionsbythe
governmentalsoaffectthefinancialmarkets.Thedecisiononhowtofinancethegovernment's
deficitswillaffectthesupplyanddemandforcashbalances,shortandlongtermdeposits(M3
moneysupply),andthusinfluenceinterestrates.Ifthegovernmentdecidestofinanceits
monetaryneedswiththeissuingofshorttermsecuritiessuchastreasurybills,thedemandfor
moneyintheshorttermmarketincreases,exertingupwardpressureoninterestrates.
Examplesofotherfactorsaffectinglocalfinancialmarketsarethefollowing:
Thelocalmarketseemstooverreactoninformationandexpectations.During1994/95the
expectationofhigherinflationwasoneofthereasonsforlongterminterestratesgoingupby
morethan5percentagepoints
Thelevelofgovernmentspendinghasanadverseeffectoninflationandinterestrate
movements
SouthAfricahadatwotierexchangeratesystem(thefinancialandcommercialrand)upto
March1995.Somerestrainingforeignexchangeregulationsarestillinplace.The
exchangeratedetermineswhatacountrypaysforimports,andwhatthatcountrygetsfor
exportsintermsofitsowncurrency,forexample,therandproceedsofgoldexports.These
importandexportpaymentshaveaneffectontheforeignreserveshaveaneffectonthe
foreignreservesthatSouthAfricaholdsandtheamountofmoneyincirculationinthe
economy.Foreigntradeandtheresultingforeignexchangerateaffectthelocaleconomic
parametersinfluencingthefinancialmarkets.
Theintegrityofthepaymentssysteminthefinancialmarkets.TrustintheSouthAfrican
systemwasaffectedbythecreditratingthatSouthAfricareceivedfromoverseasinstitutions
Highlabourcosts,excessivepoliticalviolenceandsignificantpoliticaluncertaintiesinthe
countryhavetendedtokeepawayforeigninvestors.Becauseofthelocalpoliticalfactors,
foreigninvestorswantapremiumontheirinvestmentyieldtocompensatefortheriskand
uncertaintyassociatedwithinvestinginSouthAfrica
Liquidityinthemarketsislow,andpoolingoffundsneedstobedonetoimproveliquidity
Domesticfunds,suchaspensionfunds,tendtoinvestinsharesratherthancapitalmarket
instrumentsbecauseofriskandreturnfactorsanduncertaintiesaboutinterestratesand
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volatility.Thedemandforcapitalmarketinstrumentsisthuslower,pushingupinterest
rates.Previously,fundswereforcedtoinvestincertaingovernmentcapitalmarket
instrumentsasacertainpercentageoftheirtotalportfolios
Financialdisclosureconcerningtransactions,positionsandriskinvolvingfinancialmarketsis
notinlinewithgenerallyacceptedstandardsworldside.
Capitaladequacyandinterestraterisk
Thegeneralapproachisthatfinancialpositions,whichareexposedtointerestrate
fluctuations,shouldnotbemorethanacertainpercentageoftheprimarycapitalofa
company.InternationallyacceptedlevelsaremuchlowerthanthelevelsinSouthAfrica.
1.10Conclusion
Thefinancialmarketsplayaveryimportantpartinthewellbeingofeveryperson.Theyinteract
withothermarketsandhaveaninfluenceonissuessuchaswealth,inflationandstabilityina
country.Thefinancialmarketshavetheirowncharacteristicsandtooperateinthem,itis
importanttocomprehendthesecharacteristics.

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