NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

MSC BANKING AND FINANCIAL SERVICES Presentation on Zimbabwean and South African Financial Systems

Functions of a Financial Market

To mobilize and allocate resources through financial intermediation in order to accelerate the process of economic growth. It provides channels for transferring the excess funds of surplus units to deficits ones for the purposes of profitable investment.

Classification of Financial Markets

1. The capital market It is a market for the issue and trade of longterm securities. 2. The money market short-term securities of less than a year.

Topology of Financial markets and their distinctions

1. 2. 3. 4. 5. The inter-bank and credit markets The Money Market ; The Equity Market ; The Foreign Exchange Market ; The Bond Market (for Government bonds, Corporate bonds, Eurobond market, structured bonds, etc.) ; 6. The Derivatives Market: ( for Futures, Swaps and Options).

ZIMBABWEAN MONEY MARKETS

Market is not fully operational now due to the absence of Treasury Bills in market. There are short term investment by individuals and corporates. Securities being traded now are bankers acceptance, certificates of deposit and promissory notes although subdued.

ZIMBABWE MONEY MARKETS C0NT

Incapacitation of the Reserve Bank of Zimbabwe has crippled the activities in the money market for years now. funds circulating in the economy could be properly distributed to productive sectors if RBZ was functioning properly. No confidence in the market by players due to the continued use of the United States dollars and uncertainty on the return of the Zimbabwean dollar

Capital Market
Zimbabwe Stock Exchange The Capital Markets in Zimbabwe are dominated by the Zimbabwe Stock Exchange which was established in 1974. The history of the exchange dates back to 1896 when the first exchange was established with the arrival of the pioneer column. Securities traded on the market include equities (shares), preference shares, bonds, depository receipts and warrants. Indices on the markets are divided into industrial index and mining index. There are 76 companies listed on the Zimbabwe Stock Exchange which span various sectors of the economy.

Capital Market CONT

There are 21 licensed Stock Broking Firms who trade on the exchange floor Settlement of stock exchange deals is done in the back offices of stock broking firms with Transfer Secretaries maintaining the registers of various companies whose stocks are listed on the bourse. There are four dominant transfer secretaries whose registers are electronic. These registers are not yet consolidated in a Central Securities Depository. Settlement is also supported by custodians who settle deals (transactions) on behalf of their various local and international clients.

Capital Market Cont

ZSE REGULATION
The Zimbabwe Stock Exchange (ZSE) is supervised by the Securities Exchange Commission (SEC). SEC is a statutory body established in terms of the Securities Act. Members of the ZSE are licensed by SEC, which also determines the level of capitalization required for practicing members of the ZSE. SEC has the power to intervene in the event that irregularities arise in the areas of conduct of licensed members, financial difficulties, rejection of applications and/or termination of membership.

Capital Market Cont

ZSE REGULATION
The Exchange supervises and monitors the trading process to ensure transparency in the market and to prevent manipulation of the market. All trades for listed securities by Members of the ZSE are declared to the ZSE. Any unethical or criminal activities are dealt with within the framework of the rules and regulations governing stock market transactions in Zimbabwe.

Capital Market Cont

Foreign investors can participate on the bourse provided they bring in their capital through normal banking channels. No prior exchange control approval is necessary for a foreign investor to participate on the Zimbabwe Stock Exchange. Authorized dealers, acting on behalf on non-resident investors and FCDA holders, receive funds for onward transmission to stock brokers for purchase of shares. Shares purchased on behalf of the foreign investor are registered into either their own names or the names of nominee companies. The share certificates, once registered, are endorsed 'non-resident'. For dual quoted shares, a further endorsement 'For Sale Within Zimbabwe Only' is required.

Regulation affecting foreign investors

Capital Market Cont

The maximum foreign investment is limited to 10% per single investor and 40% collectively. Should a foreign investor exceed the 10% limit, the transfer secretary may not effect registration and is obliged to report to the Zimbabwe Stock Exchange.

Capital Market Cont

The purpose of the committee is to enforce listing requirements on all listed companies, manage and control the affairs of the ZSE, settle disputes between members and examine all applications for listing on the bourse. Authority of the Committee on Listing Requirements The Committee of the Zimbabwe Stock Exchange has the power: To grant, review suspend or terminate listings subject to the listings requirements. To prescribe from time to time the minimum listings requirements with which an applicant shall comply before each security issued by such applicant is granted a listing. To prescribe from time to time the minimum listings requirements with which a listed company shall comply while a security issued by it remains listed.

Capital Market Cont

BOND MARKET
No active bond market Star Africa and PGI have both issued $10m convertible debenture arranged by Banc ABC The PGI debenture is listed and trading on ZSE Star Africa is a private placement

Capital Market Cont

DERIVATIVE MARKET
There has not been any trading on this market. Zimbabwe's economy now on its economic recovery. There is need to introduce them in the market so as to interlink various economic sectors.

Capital Market Cont

COMMODITIES MARKET
The market existed in form of ZIMACE but no longer operating. Used to trade in agric produce

Capital Market Cont

FOREIGN EXCHANGE MARKET
Currently virtually non existent due to multicurrency currency regime Banks and international money transfer agencies offer some exchange trading for facilitating foreign payments across currencies Zimbabwe used to have Registered Money Transfer Agencies (MTAs), and Bureau de change as active players in foreign exchange market

Capital Market Cont

FINANCIAL REGULATION
To protect depositors funds Correction of market imperfection and failures in terms of interest rates and bank charges. Need for consumer confidence Moral hazards

Capital Market Cont

FINANCIAL REGULATION Ideal conditions for effective regulation
Differentiating financial products Competitive pressure Structure of financial institutions should remain the same. Use of moral suasion by the financial regulator Having simple or limited objectives (SMART)

Capital Market Cont

REGULATION IN ZIMBABWE

New capital requirements By 30 June 2011 19 out of 25 banking institutions had met the requirements Nothing has been done to non complying members posing a weakness on the part of the regulator. The recent Rennaissance Bank crisis is one example that has exposed the financial regulator. RBZ has published guidelines for adopting Basel 2 Main tool of regulation is imposition of minimum capital requirements on all banking classes 30 September 2011, deadline for submission of the mapping procedures The Implementation of the revised Basel 2 framework shall commence on 1 January 2012 and finalized by 1 January 2013 for full adoption.

Capital Market Cont

REGULATION IN ZIMBABWE Regulatory guidelines
Special Purposes vehicle, securitisation and structured finance Consolidated Supervision policy framework Risk Based supervision policy framework Risk Management Guideline Corporate Governance Guideline Board and Director Evaluation Framework Money laundering (Anti-Money laundering Advisory Council)

Capital Market Cont

ZIMBABWES FINACIAL REGULATORY LEGISLATION
Reserve Bank ACT (Chap 22:15 Banking Act chap 24:20 Building Societies Act-chap 24:04

People's Own Savings Bank Act-chap 24:22

Exchange Control Act-chap 22:05 Pension and Provident Fund Act-chap 24:09 Insurance Act-chap 24:07 National Payments Systems Act-chap 24:23 Money Lending and Rates of Interest Act-chap 14:14 Collective Investment Scheme Act-chap 24:19 State Loans and Guarantees Act-22:13 Prescribed Rate of Interest Act-chap 8:10Small Enterprises Development Actchap 24:12 Securities Act-chap 24:25 which repealed ZSE Act-chap 24:18

SOUTH AFRICAN FINANCIAL MARKETS

Interest Rate Market

Introduction to Interest Rate Market
The Johannesburg Stock Exchanges Interest Rate Market provides investors with the opportunity to trade products in both the cash and the derivative markets. Clients can trade on-exchange (Central Order Book) or away from the market (Report Only). When trading on the exchange, counterparty credit risk is eliminated and all trades are guaranteed via margining.

Equity Market
The Equity Market provides investors with the opportunity to trade a multitude of listed securities including Equities, Exchange Traded Funds (ETFs) and Warrants. This market also provides companies with the opportunity to raise capital in a highly regulated environment through the Main Board. The Equity Market utilises a world class fully automated trading system operated by the London Stock Exchange.

Bond Exchange of South Africa

Was formally registered as an exchange in 1996, previously traded as the Bond Market Association and offers three-day rolling settlement and implements a bond automated trading settlement system. Besa currently enjoys an annual liquidity of 38 times the market capitalisation, making it one of the most liquid emerging bond markets in the world. Besa complies with all Group of 30 recommendations on clearing and settlement.

Equity Derivatives Market

JSE Derivatives Educational Seminars. The Equity Derivatives market provides a platform for trading Futures and/or Options. Futures and Options are derivative instruments which derive their value from an underlying instrument. On-Exchange trading provide clients with transparency, eliminates counterparty risk, and as the Exchange we are an Independent source for price discovery. The regular administration of margins prevents participants from accumulating large unpaid losses, which could impact on the financial position of other market users (systemic risk). Such margining systems do not exist in over-the-counter (OTC) markets.

Equity Derivatives Market cont

The protection and safeguarding of clients interests are of utmost importance. Regulation, therefore, plays a crucial role in this regard with the Equity Derivatives market being overseen by the Financial Services Board and controlled in terms of the Securities Services Act. Certain regulatory activities include the registration of all members and clients, strict financial requirements for members and regular inspection of members records and procedures. The benefits of trading futures and options are: Capital efficient way to participate in shares Incur lower brokerage fees than actually trading in the underlying Take advantage of price movements in the underlying Liquid and easily traded Portfolio Diversification Short Selling is allowed

Currency Derivatives Market

Currency Futures & Options trade on the electronic trading platform - Nutron, offering an efficient, electronic, automatic and transparent platform for the trading of currency derivative products.

The following currencies are listed on the exchange: Dollar/Rand, Euro/Rand, Pound/Rand, Australian Dollar/Rand and Japanese Yen/Rand Currency Futures & Options contracts.

Currency Derivatives Market cont

The following categories of clients are permitted to trade and hold positions in currency derivatives and are referred to as "qualifying clients." A South African individual with no limits applicable, A South African corporate entity with no limits applicable, A non resident individual or non resident corporate entity with no limits applicable, .

Currency Derivatives Market cont

A resident financial service provider and collective investment scheme subject to their foreign portfolio allowance, A resident pension fund organisation subject to their foreign portfolio allowance, A resident long-term or short-term insurer subject to their foreign portfolio allowance

SAFEX Commodity Derivatives Market

The Commodity Derivatives Market provides a platform for price discovery and efficient price risk management for the grains market in South and Southern Africa. More recently, the Division also offers derivatives on precious metals and crude oil.

SAFEX Commodity Derivatives Market

Commodity markets have existed for many centuries and were the first to innovate contracts in which to manage price risk. The use of derivative instruments through futures and options contracts, provide market participants with the ability to manage their price risk in the underlying physical market structure

SAFEX Commodity Derivatives Market cont

Producers and users of agricultural commodities who hedge their price risk are thereby limiting their exposure to adverse price movements. This encourages increased productivity in the agricultural sector as farmers and users are able to concentrate their efforts on managing production risks. Production risks associated with variables such as the weather, farm/production management and seasonal conditions.

The physically settled commodities rely on warehouse receipts to facilitate the delivery process. The warehouse receipts are utilized by financial institutions who offer financing to clients who own the receipts. Derivative contracts also enable institutions to fund input costs to producers who hedge their price risk and in so doing encourage sustainable production. The cash settled commodities, like gold and crude oil, reference highly liquid international markets for the final cash settlement value thereby providing all participants with the assurance that the local settlement price is not open to any abuse.

The JSE Limited

The JSE Limited is the 18th largest exchange in the world by market capitalisation (some R3.3-trillion as of September 2005). With approximately 400 listed companies and a market liquidity of 31.2% .South Africa's exchange is only marginally smaller than Stockholm's and larger than no fewer than nine exchanges officially classified as "developed".

The JSE Limited cont

The JSE's main function is to facilitate the raising of capital by re-channelling cash resources into productive economic activity, thus building South Africa's economy while enhancing job opportunities and wealth creation. Under one roof, the JSE offers investors the choice of four markets: 1. An equities market, including stocks from the Main Board and the small to mid-cap Alternative Exchange. 2. An interest rate market. 3. An active financial derivatives market. 4. An agricultural products market

Africa Board
The Africa Board is the platform where top African companies can be traded on the JSE. It is your gateway to the growing market place that is Africa. The Africa Board forms part of the JSEs long term strategy to promote the growth of capital markets on the African continent. It has been developed to attract foreign capital to the African market, by allowing investors access to the very exciting opportunities that exist in Africa. Entry into the market is through the JSE, which is accredited by the World Federation of Exchanges, and provides a secure, accessible and regulated platform for trade. Trading takes place using a trading, clearing and settlement system that is easily accessible, secure and cost effective.

Main Board
In 1886, the discovery of gold on the Witwatersrand led to a boom in mining and financial companies and a stock exchange was soon needed. And so began the Johannesburg Stock Exchanges Main Board. The JSE holds a treasured position as one of the top 20 exchanges in the world in terms of market capitalisation. The majority of this market capitalisation is based on the companies listed on the Main board and the JSEs top 40 stocks are also listed here. These stocks are highly regarded by both local and international investors. The Main Board houses the same sectors grouped according to the London Stock Exchanges XXXX. Dual listings are actively encouraged and are possible on all boards of the JSE.

AltX
AltX, the alternative exchange, is a division of the JSE Limited (JSE) is an exciting parallel market focused on good quality small and medium sized high growth companies. AltX is designed to appeal to a diverse range of companies in all sectors. AltX plays a vital role within the JSE, by providing smaller companies not yet able to list on the JSE Main Board with a clear growth path and access to capital. To be eligible for listing, a company must appoint and retain the services of a registered Designated Advisor - a similar role to the current JSE Sponsor but with different responsibilities.

An overview of the financial institutions in Zimbabwe and South Africa

Financial Institutions in Zimbabwe and South Africa

Zimbabwe, unlike most African counties, has a vibrant financial institutional setup which comprises of the banking system and non-bank financial intermediaries. Governing and controlling the operations of the financial sector is the central bank, RBZ. The Reserve Bank traces its roots to the Bank of Rhodesia, founded in 1956, which in turn was the successor to the Central Currency Board. The central bank is fundamentally a promulgation of an act of parliament, the RBZ act chapter 22:15 which essentially recognises the bank as an independent institution (though wholly owned by the Government of Zimbabwe) ideally divorced from the central governments operations

Financial Institutions in Zimbabwe and South Africa cont

In 1985 a department for bank supervision was created in the Reserve Bank to monitor the foreign activities of South African banking institutions. With this step South Africa confirmed its support of the Basle Concordat of June 1983, in terms of which central banks undertake to extend their supervisory activities to include the international activities of banking institutions to facilitate closer co-operation between the supervising authorities. Following recommendations made in 1985 by the De Kock commission of inquiry into the monetary system and monetary policy in South Africa, the functions of this department were expanded to include supervision of the domestic activities of all banks - a task previously performed by the Registrar of Financial Institutions.

Financial Institutions in Zimbabwe and South Africa cont

The Financial Services Board is a unique independent institution established by statute to oversee South Africa's non-banking financial services industry in the public interest. The Financial Services Board's mission is to promote sound and efficient financial institutions and services together with mechanisms for investor protection in the markets South Africa supervises. Major financial institutions regulated by the board include the country's exchanges and insurers, both short term-and long-term.

Financial Institutions in Zimbabwe cont

Reserve Bank of Zimbabwe

Deposit Taking Institutions

Commercial banks Merchant banks POSB Building Societies

Non-Deposit Taking Institutions

Insurance Providence & Pension Funds Microfinance Asset Management Development Finance Institutions

Structure of the Banking Sector in Zimbabwe

Type of institution Commercial Banks* Merchant Banks Building Societies Savings Bank Finance Houses Discount Houses Total Banking Institutions Asset Management Companies Microfinance Institutions Number 17 4 4 1 0 0 26 16 132

*Excludes Barbican Bank which was re-licensed but is not yet operational and includes Interfin Bank Limited formerly a merchant bank. Source :Reserve Bank of Zimbabwe

Central Bank Roles

Established through an Act of Parliament (Reserve Bank Act) Banker to Government and Banks Lender of last resort Issuance of notes and coins Surveillance and Supervision of Financial Institutions Execution of Monetary Policy Custodian of Gold and other foreign assets

Commercial Banks
There are currently 17 commercial banking institutions carrying out business through a network of branches, agencies and mobile facilities. With the opening up of the economy and increased competition in the sector, more institutions joined the market. South Africa has a vibrant commercial banking system consisting of banks which are locally owned e.g First Rand Bank and Nedbank, foreign owned e.gs Absa Bank and Albaraka Bank Ltd

Roles of Commercial Banks

Current and deposit account facilities Provision of loans and overdrafts Foreign exchange facilities Financial advice and provision of facilities for the purchase and sale of investments Involvement in the clearing system

Merchant Banks
The need to sustain a steady growth is necessary for corporations and individuals which is possible only with a long term strategy and financial options. The merchant banking services provide solutions and financial options.There exist 4 merchant banks in the Zimbabwe e.gs include Tetrad, Ecobank and Genesis South African examples include Rand Merchant Bank, Citi Bank and FNB

Roles of Merchant Banks

Provision of wholesale banking services Underwriting of securities and portfolio management Trade finance through acceptance credit facilities

Building Societies
Four building societies are currently carrying out business in Zimbabwe through a network of about 195 branches nationwide Cheque clearing requirements are handled through commercial banks where they hold accounts

Roles of Building Societies

Mainly involved in saving, fixed deposit Mortgage lending Deposits and withdrawals

Post Office Savings Bank (POSB)

In Zimbabwe ,the POSB complements the payment processing infrastructure through its network of banking halls It runs an extensive network of 185 branches nationwide In South Africa, the system is run by Post-Bank

Roles of the POSB

Facilitates cash transfers through their branch network using money or postal orders Offers convenient alternative banking services in remote areas Savings and fixed deposit taking

Development Financial Institutions

These accelerate sustainable socioeconomic development by funding infrastructural projects Promotion of entrepreneurship through encouraging innovation and industrial development Zimbabwean example: IDBZ South African examples: Development Bank of South Africa, Industrial Development Corporation

Mutual Savings Banks

Chartered through the state to provide a safe place to save and invest savings in loans,stock and other securities

Non Banking Financial Institutions

Are non banking bodies which provide payment services These mainly comprise of insurance companies ,provident and pension funds and development finance institutions

Insurance Companies
Classified into life and non-life insurance There are 44 insurance companies as a whole They range from general insurance to cover life insurance

Provident and Pension Funds

Regulated by Pensions and Provident Act chapter 24:07 Example of pension fund collectors include NSSA,MIPF Provision of pensions to retired employees Capital finance projects e.g building dams and construction of roads

Micro-Finance Institutions (MFIs)

Microfinance can offer powerful ways for the poor to unlock the productive potential by growing small business especially agricultural productivity They provide funding to the otherwise unbankable society There are 132 registered microfinance institutions in Zimbabwe Examples include Micro king,Zambuko,SEDCO

Asset Management
These deal in corporate banking advisory services Responsible for financing capital projects 16 licensed Asset Management Companies including Imara,Flame,Kingdom Asset Management

Savings and Credit Cooperatives(SACCO)

Provides credit at competitive rates as compared to other financial service providers. Formed by members of churches or labor unions who elect a board to run day to day activities. The Stokvel sector is controlled by National Stokvel Association of South Africa(NASASA)

Zimbabwe Financial Regulation

Reserve Bank Act Chapter 22:15 Banking Act Chapter 24:20 Building Societies Act Chapter 24:04 Exchange Control Act Chapter 22:05 State Loans and Guarantees Act Chapter 22:13 Minimum Capital Requirements Basel II framework

South Africa`s Institutional Framework

FINANCIAL INSTRUMENTS
Money market
Is a market where money equivalent instruments or money are traded. Is mainly a network of financial institutions and dealers wishing to generate liquidity, short term borrowing and investments. The transactions mostly have duration of less than a year.

Summary of Money Markets Instruments in Zimbabwe and SA

Money Market Zimbabwe Instruments Before Dollarization Treasury Bills Bankers Acceptance Commercial Paper Certificate of Deposit Promissory Notes Repurchase Agreements
Yes Yes Yes Yes Yes

Zimbabwe After Dollarization

No Yes No Yes Yes

South Africa

Yes Yes Yes Yes Yes

Yes

No

Yes

Money market cont....

Treasury bills: short term debt security issued by the government through the central bank normally the tenure period is between 90 days and 180 days. Can be used to finance government deficit or to control money supply.

Money market cont...

BANKERS ACCEPTANCES
Is a bill of exchange drawn on and accepted by a bank. The drawer of the bill is usually a company seeking financing from the bank. Tenure period can run up to 90 days but can also range to 270days.

Money market cont....

Commercial paper: a short term unsecured promissory note issued by corporates at a discounted value on face value. Usually have fixed maturity ranging from 1 to 270 days. Sometimes called an unsecured written acknowledgement of debt issued to acquire working capital

Money market cont....

Promissory notes: a written promise made by the issuer (borrower) to the investor (lender) to repay the loan or debt under specific terms, or in a series of payments, or upon demand.

Money market cont....

Repurchase agreements (REPO) An agreement under which funds are borrowed through the sale of short term securities such as TB with a commitment by the seller (borrower) to buy the security back from the purchaser at a specified price at a designated future date. The maturity ranges from over night to 30 days and sometimes long

CAPITAL MARKET INSTRUMENTS

A formal market in which institutions, corporations, companies, and government raise long term funds to finance capital investments. Instruments are traded on organised exchange markets or over the counter. it is sub divided into primary and secondary market. The primary market is mainly for new issues whilst the secondary market is a market for previously issued instruments.

CAPITAL MARKET INSTRUMENTS

Domestic capital markets play a pivotal in allocating domestic and foreign savings towards South African market requirements. To illustrate the importance of a well functioning capital market towards sustainable economic growth consider the south Africans invest about R5 trillion of their R6.04 trillion Aggregate savings about 80% into the JSE listed equities and bonds and their derivative products.

Summary of Capital Market Instruments in Zimbabwe and SA

Capital Market Instruments Zimbabwe Before Dollarizatio n
Yes Yes

Zimbabwe After Dollarization

No Yes

South Africa

Bonds Debentures

Yes Yes

Equities Exchange Traded Funds

Derivatives(Forwa rd Contacts, Futures,Swaps, Options)

Yes No
No

Yes No
No

Yes Yes
Yes

CAPITAL MARKET INSTRUMENTS

BONDS A fixed-interest-bearing security sold by the issuer promising to pay the holder interest (called coupons) at future dates (usually every six months) and the nominal (principal or face or par) value of the security at maturity. Bonds are issued by the government (government bonds), public corporations (corporate bonds), local authorities (municipal bonds), companies and banks

CAPITAL MARKET INSTRUMENTS Bonds cont

By august 2011 issued fixed income securities (bonds) amounted to R1,4 trillion with value traded in nominal turnover at 20 trillion per year. Total outstanding South African government bonds amounted to R717 billion of which 26,9%(R193 Billion) in outstanding bonds held by foreigners. Call bond:A loan made to the issuer (borrower) by the investor (lender) which may be terminated or called at any given time. It is repayable on demand.

CAPITAL MARKET INSTRUMENTS cont

DEBENTURES A debenture is a fixed-interest-bearing security issued by a company. The debenture contract consists of the debenture itself and the indenture or trust deed.

The debenture is the primary contract between the issuer and investor and represents a promise by the issuer to pay interest as specified and repay the nominal value at maturity. The trust deed is a supplementary contract between the issuer and the trustees, who are representatives of the debentureholders setting out the rights of individual

CAPITAL MARKET INSTRUMENTS cont

EQUITIES Equities, also known as shares or stock, are certificates representing ownership in a corporation or a residual claim against the assets of a company after obligations to creditors and bondholders have been met. Shares in the equity capital of a company that entitle shareholders to all profits after commitments to preference shareholders as well as creditors and bondholders have been met are known as ordinary shares or common stock.

EXCHANGE TRADED FUNDS

A fund that tracks an index but can be traded like a stock. They bundle together securities that are in an index and investors can do just anything like a normal stock such as short selling, price fluctuations from moment to moment, and are also traded on a stock exchange. The investor needs a broker in order to purchase them. They are tax efficient and have lower transaction costs associated with them.

DERIVATIVES
Derivatives are financial instruments that derive their value from the values of other underlying variables. These variables can be underlying instruments in the cash market (equity, money, bond, foreign exchange and commodities markets) as well as the derivatives market.

DERIVATIVES
In terms of derivatives per year measured in notional values of the underlying securities is at around R109 trillion while the value of unexpired contracts is 36.4 trillion rand. Derivatives trading in south Africa is dominated by interest rates contracts.

Types of derivatives in the financial market

Forward contracts: a cash market transaction in which delivery of the commodity is deferred until after the contract has been made and the price is determined at the initial trade date Futures contract A futures contract is an agreement to buy or sell, on an organised exchange, a standard quantity and quality of an asset at a future date at a price determined at the time of trading the contract.

Types of derivatives in the financial market cont

Options: an option contract conveys the right to buy or sell a specific quantity of an underlying asset. Options are generally described by the nature of the underlying Options: an option contract conveys the right to buy or sell a specific quantity of an underlying asset. Options are generally described by the nature of the underlying asset or derivative. An option on equity is termed an equity option, an option on futures contract a futures option, an option on a swap, a swaption and soon.

Derivativatives cont..
Swaps: A swap is a contractual agreement by which two parties, called counterparties, agree to exchange (or swap) a series of cash flows at specific intervals over a certain period of time. There are four types of swaps - interest-rate, currency, commodity and equity swaps

GENERAL OVERVIEW OF THE ZIMBABWEAN AND SOUTH AFRICAN FINANCIAL INSTRUMENTS

Dollarization resulted in some money market instruments such as TBs and repurchase agreements being shelved. However some of these instruments are actively traded. The South African financial market is diverse since it has got a number of separate specific markets such as Johannesburg Stock Exchange (JSE), South African Futures Exchange (SAFEX), Bond Exchange of South Africa (BESA) and others.

GENERAL OVERVIEW OF THE ZIMBABWEAN AND SOUTH AFRICAN FINANCIAL INSTRUMENTS cont

BESA offers three day rolling settlement and implements a bond automated trading settlement system. BESA currently enjoys an annual liquidity of 36 times the market capitalisation making it one of the most liquid emerging bond markets.