An analysis of bank risk management and its relevance for the non-bank corporate sector
- Authors: Dietrich, David Roland
- Date: 2007
- Subjects: Bank management , Risk management , Corporations -- Finance , Financial institutions , Banks and banking
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:949 , http://hdl.handle.net/10962/d1002683 , Bank management , Risk management , Corporations -- Finance , Financial institutions , Banks and banking
- Description: This thesis, entitled “An analysis of bank risk management and its relevance for the non-bank corporate sector”, investigates the extent to which financial risk management by the banking sector can be applied to the non-bank corporate sector. As banks’ risk management techniques are more sophisticated than those of the non-bank corporate sector we have endeavoured to ascertain the applicability of these established risk management methods to the non-bank corporate sector. The main objectives of this study were to analyse the banking sectors’ risks and management thereof, and compare them to the risks faced by the nonbank corporate sector. This analysis was then used to present a theoretical financial risk management model for the corporate sector. This analysis was conducted using qualitative research. The thesis engaged in an in-depth investigation of financial risk management through a documentary, literature and media analysis. It was elucidated that not all companies face the same financial risks and therefore each company requires its own unique financial risk management model. Furthermore, it was established that there are several risks that both banks and non-bank corporates are subjected to. However, the management of these risks is not necessarily the same for these two types of institutes. This thesis concludes by putting forward a financial risk management model which presents all the possible financial risks that non-bank corporates may face.
- Full Text:
- Date Issued: 2007
- Authors: Dietrich, David Roland
- Date: 2007
- Subjects: Bank management , Risk management , Corporations -- Finance , Financial institutions , Banks and banking
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:949 , http://hdl.handle.net/10962/d1002683 , Bank management , Risk management , Corporations -- Finance , Financial institutions , Banks and banking
- Description: This thesis, entitled “An analysis of bank risk management and its relevance for the non-bank corporate sector”, investigates the extent to which financial risk management by the banking sector can be applied to the non-bank corporate sector. As banks’ risk management techniques are more sophisticated than those of the non-bank corporate sector we have endeavoured to ascertain the applicability of these established risk management methods to the non-bank corporate sector. The main objectives of this study were to analyse the banking sectors’ risks and management thereof, and compare them to the risks faced by the nonbank corporate sector. This analysis was then used to present a theoretical financial risk management model for the corporate sector. This analysis was conducted using qualitative research. The thesis engaged in an in-depth investigation of financial risk management through a documentary, literature and media analysis. It was elucidated that not all companies face the same financial risks and therefore each company requires its own unique financial risk management model. Furthermore, it was established that there are several risks that both banks and non-bank corporates are subjected to. However, the management of these risks is not necessarily the same for these two types of institutes. This thesis concludes by putting forward a financial risk management model which presents all the possible financial risks that non-bank corporates may face.
- Full Text:
- Date Issued: 2007
An empirical investigation into the determinants of stock market behaviour in South Africa
- Authors: Olalere, Durodola Oludamola
- Date: 2007
- Subjects: Johannesburg Stock Exchange , Stocks -- Prices -- South Africa , Stock exchanges -- South Africa , Macroeconomics -- South Africa , Interest rates -- South Africa , Foreign exchange rates -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:998 , http://hdl.handle.net/10962/d1002733 , Johannesburg Stock Exchange , Stocks -- Prices -- South Africa , Stock exchanges -- South Africa , Macroeconomics -- South Africa , Interest rates -- South Africa , Foreign exchange rates -- South Africa
- Description: The argument with regards to whether macro-economic fundamentals determine stock market behaviour is very important because of the roles it plays in an economy. Such roles include: pooling and trading of risks, mobilization of savings, provision of liquidity and allocation of capital. However, the stock market will only perform such roles effectively if the macro-economic environment is conducive. This study examined the behaviour of the All Share Index (ALSI) and market capitalization on the Johannesburg Stock Exchange in response to changes in the domestic and international macro-economic fundamentals such as the consumer price index, rand-dollar real exchange rates, domestic GDP, yield on South African government bonds, yield on United States government bonds and United States GDP. The study used cointegration and error correction techniques proposed by Johansen and Juselius (1990) to test for long run relationship. Two separate models were estimated and results obtained show that the two proxies for the stock market behaviour (All share Index and market capitalization) are true endogenous variables, but react differently to economic fundamentals. The consumer price index has a significant negative impact on the JSE share price index while market capitalization is determined predominantly by the yield on South African government bonds. The exchange rate seems to have had little or no influence on the share price index, but becomes negative and significant in the case of market capitalization. The yield on United States government bonds also produced a strong influence on both the share price index and market capitalization. While it has a negative significant impact on share prices, it produced a positive significant impact on market capitalization. In order to ascertain whether the South African interest rate or the United States interest rate is more important in explaining the share price and market capitalization, each of the variables were estimated in the model separately, the result obtained reveals that the United States interest rate is more important than the domestic interest rate in explaining the share price and market capitalization on the JSE. This implies that investors need to observe the USA interest rate before investing in South African equities. A comparison of the responses of share price index and market capitalization to impulses from the macro-economic variables tested reveals that both proxies elicit a positive response from aggregate output. The share price index responds more significantly to impulses from output growth than the market capitalization, meaning that, as aggregate production increases, the share price index tends to respond positively and quickly. The exchange rate produced mixed result from the two proxies, while it produced a positive response from the market capitalization; an initial positive response was noted in the share price index that immediately turned negative. Another glaring contrast was identified in the response of both proxies to impulses from the United States interest rate. The share price index responded positively while the market capitalization produced a negative response. This finding reveals that the two proxies actually respond differently to macro-economic variables. The variance decomposition of both stock prices and market capitalization reveals that the yield on United States government bonds has a more significant absorption potential than the South African government bonds. However, the absorption process is slower in the case of the market capitalization. The exchange rate has a greater impact on the market capitalization than stock prices. The overall assessment shows that share prices respond faster than market capitalization to macro-economic fundamentals. The study also shows that the increased openness of the South African economy by way of relaxation of the exchange control on capital account transaction has allowed the USA market to play a crucial role in equity prices in South Africa. Three main policy recommendations results from the study. Firstly, if inflation is well monitored, then the local equity market is bound to perform strongly resulting in strong shares earning growth. Secondly, the exchange rate should be made to be less volatile so that long term investment plans across borders can be further enhanced. Thirdly, financial analyst and investors in South Africa need to analyse macro-economic developments in the United States before investing in equities in South Africa.
- Full Text:
- Date Issued: 2007
- Authors: Olalere, Durodola Oludamola
- Date: 2007
- Subjects: Johannesburg Stock Exchange , Stocks -- Prices -- South Africa , Stock exchanges -- South Africa , Macroeconomics -- South Africa , Interest rates -- South Africa , Foreign exchange rates -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:998 , http://hdl.handle.net/10962/d1002733 , Johannesburg Stock Exchange , Stocks -- Prices -- South Africa , Stock exchanges -- South Africa , Macroeconomics -- South Africa , Interest rates -- South Africa , Foreign exchange rates -- South Africa
- Description: The argument with regards to whether macro-economic fundamentals determine stock market behaviour is very important because of the roles it plays in an economy. Such roles include: pooling and trading of risks, mobilization of savings, provision of liquidity and allocation of capital. However, the stock market will only perform such roles effectively if the macro-economic environment is conducive. This study examined the behaviour of the All Share Index (ALSI) and market capitalization on the Johannesburg Stock Exchange in response to changes in the domestic and international macro-economic fundamentals such as the consumer price index, rand-dollar real exchange rates, domestic GDP, yield on South African government bonds, yield on United States government bonds and United States GDP. The study used cointegration and error correction techniques proposed by Johansen and Juselius (1990) to test for long run relationship. Two separate models were estimated and results obtained show that the two proxies for the stock market behaviour (All share Index and market capitalization) are true endogenous variables, but react differently to economic fundamentals. The consumer price index has a significant negative impact on the JSE share price index while market capitalization is determined predominantly by the yield on South African government bonds. The exchange rate seems to have had little or no influence on the share price index, but becomes negative and significant in the case of market capitalization. The yield on United States government bonds also produced a strong influence on both the share price index and market capitalization. While it has a negative significant impact on share prices, it produced a positive significant impact on market capitalization. In order to ascertain whether the South African interest rate or the United States interest rate is more important in explaining the share price and market capitalization, each of the variables were estimated in the model separately, the result obtained reveals that the United States interest rate is more important than the domestic interest rate in explaining the share price and market capitalization on the JSE. This implies that investors need to observe the USA interest rate before investing in South African equities. A comparison of the responses of share price index and market capitalization to impulses from the macro-economic variables tested reveals that both proxies elicit a positive response from aggregate output. The share price index responds more significantly to impulses from output growth than the market capitalization, meaning that, as aggregate production increases, the share price index tends to respond positively and quickly. The exchange rate produced mixed result from the two proxies, while it produced a positive response from the market capitalization; an initial positive response was noted in the share price index that immediately turned negative. Another glaring contrast was identified in the response of both proxies to impulses from the United States interest rate. The share price index responded positively while the market capitalization produced a negative response. This finding reveals that the two proxies actually respond differently to macro-economic variables. The variance decomposition of both stock prices and market capitalization reveals that the yield on United States government bonds has a more significant absorption potential than the South African government bonds. However, the absorption process is slower in the case of the market capitalization. The exchange rate has a greater impact on the market capitalization than stock prices. The overall assessment shows that share prices respond faster than market capitalization to macro-economic fundamentals. The study also shows that the increased openness of the South African economy by way of relaxation of the exchange control on capital account transaction has allowed the USA market to play a crucial role in equity prices in South Africa. Three main policy recommendations results from the study. Firstly, if inflation is well monitored, then the local equity market is bound to perform strongly resulting in strong shares earning growth. Secondly, the exchange rate should be made to be less volatile so that long term investment plans across borders can be further enhanced. Thirdly, financial analyst and investors in South Africa need to analyse macro-economic developments in the United States before investing in equities in South Africa.
- Full Text:
- Date Issued: 2007
Financial instability in South Africa : trends and interactions within the financial markets
- Authors: Shikwambana, Jamela
- Date: 2007 , 2013-08-06
- Subjects: Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1043 , http://hdl.handle.net/10962/d1005911 , Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
- Description: This study seeks to investigate the trends and interactions of market volatility as a source of instability in the South African financial markets. Financial instability can be manifested in the form of banking and currency crisis, institutional failures and extreme asset price volatility. This study, however, focuses on a single aspect of financial instability - asset price volatility. Asset price volatility reflects changes in market expectations as investors react to such changes, and thus on its own is not necessarily a source of instability. However, volatility spillovers can propagate volatility shocks across the market, increasing the risk of widespread instability. Using a combination of graphical and trend analysis as well as more formal estimation techniques, the study examined volatility in the stock, money and foreign exchange markets. To obtain estimates of market volatility, the study experimented with various volatility models that include the GARCH, TARCH and EGARCH. An analysis of volatility interactions and the transmission of volatility shocks across the market is crucial to understanding financial instability. To examine volatility interaction and the transmission of volatility shocks, a VAR model was estimated. This framework allowed us to examine the propagation of shocks across the markets. Volatility in the financial markets was found to be highly persistent and in the case of exchange rates, volatility was also characterised by an increasing trend. Significant linkages between the financial markets were found. The links also extended to the volatility relationship as evidenced by significant volatility spillovers across the markets. While volatility spillovers from the money market were found in the stock market and the foreign exchange market, no volatility spillovers from these markets were found in the money market. Thus the money market was identified as the major source of volatility spillovers and shocks in the financial markets. These results highlighted the role of monetary policy in the financial system, specifically the need to make monetary policy stable and predictable to ensure that interest rate shocks are not an additional source of instability. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
- Full Text:
- Date Issued: 2007
- Authors: Shikwambana, Jamela
- Date: 2007 , 2013-08-06
- Subjects: Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1043 , http://hdl.handle.net/10962/d1005911 , Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
- Description: This study seeks to investigate the trends and interactions of market volatility as a source of instability in the South African financial markets. Financial instability can be manifested in the form of banking and currency crisis, institutional failures and extreme asset price volatility. This study, however, focuses on a single aspect of financial instability - asset price volatility. Asset price volatility reflects changes in market expectations as investors react to such changes, and thus on its own is not necessarily a source of instability. However, volatility spillovers can propagate volatility shocks across the market, increasing the risk of widespread instability. Using a combination of graphical and trend analysis as well as more formal estimation techniques, the study examined volatility in the stock, money and foreign exchange markets. To obtain estimates of market volatility, the study experimented with various volatility models that include the GARCH, TARCH and EGARCH. An analysis of volatility interactions and the transmission of volatility shocks across the market is crucial to understanding financial instability. To examine volatility interaction and the transmission of volatility shocks, a VAR model was estimated. This framework allowed us to examine the propagation of shocks across the markets. Volatility in the financial markets was found to be highly persistent and in the case of exchange rates, volatility was also characterised by an increasing trend. Significant linkages between the financial markets were found. The links also extended to the volatility relationship as evidenced by significant volatility spillovers across the markets. While volatility spillovers from the money market were found in the stock market and the foreign exchange market, no volatility spillovers from these markets were found in the money market. Thus the money market was identified as the major source of volatility spillovers and shocks in the financial markets. These results highlighted the role of monetary policy in the financial system, specifically the need to make monetary policy stable and predictable to ensure that interest rate shocks are not an additional source of instability. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
- Full Text:
- Date Issued: 2007
The demand for broad money (M2) in Botswana
- Authors: Tsheole, Thapelo
- Date: 2007
- Subjects: Monetary policy -- Botswana , Demand for money -- Botswana , Botswana -- Economic conditions , Quantity theory of money
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:966 , http://hdl.handle.net/10962/d1002700 , Monetary policy -- Botswana , Demand for money -- Botswana , Botswana -- Economic conditions , Quantity theory of money
- Description: There has been extensive theoretical and empirical research on the subject of demand for money function. This particularly stems from the important role demand for money plays in macroeconomic analysis, especially in the design and implementation of monetary policy. The increase in studies, especially in developing countries, can also be attributed to a number of factors like: the impact of moving towards flexible exchange rate regimes, globalisation of financial markets, ongoing financial liberalisation, innovations in domestic financial products, the advancement in econometrics techniques and other country-specific events. This study estimates and examines the nature and stability of the demand for broad money (M2) in Botswana. This is particularly important in that the usefulness of a money demand function in the conduct of monetary policy depends crucially on its stability. The stability of the money demand function is crucial in that a stable money demand function would mean that the quantity of money is predictably related to a set of key economic variables linking money and the real economic sector. Therefore, this will help central banks to select appropriate monetary policy actions. Based on the findings, the study also proposes policy interventions. The vast majority of the literature on demand for money has underscored the fact that variable selection and representation, and the framework chosen are the two major issues relevant to modelling and estimation of the demand for money function. In modelling and estimating the demand for money function in Botswana, this study surveys a stream of theoretical and empirical literature on money demand in developed and developing countries, including countries that have similar financial sector similar to Botswana. Due consideration is also given to the macroeconomic and financial sector development in Botswana to help in the identification of the variables that are included in the demand for money equation. Most importantly, this helped in getting meaningful results that are free from theoretical and estimation problems. In particular, this study applied the multivariate cointegration approach as proposed by Johansen (1988) and Johansen and Juselius (1990) to estimate the relationship between broad money (M2), real income, interest rate, South African treasury bill rate, inflation rate and US dollar/pula bilateral exchange rate. The study obtains one unique long run relationship between money and the scale and opportunity cost variables. The coefficients of the long run relationship are then modelled along the general to specific approach as proposed by Campos, Ericsson and Hendry (2005). In this type of approach the general model is reduced by sequential elimination of statistically insignificant variables and checking the validity of the reductions at every stage to ensure congruence of the finally selected parsimonious model. In accordance with the economic quantity theory of money, the long run income elasticity obtained is 0.8021, which is close to the value one (unitary) suggested by economic theory. The coefficients of real income, exchange and inflation rate have the expected positive signs and were significant in the long run. Therefore, the long run demand for money (M2) in Botswana was found to be positively affected by real income, inflation rate and exchange rate. The lack of statistical significant of the own rate of money (88 day commercial bank deposit rate) and the foreign opportunity cost variable (South African Treasury bill rate) is attributed to multi-collinearity problems between these two interest rates. This could be caused by the fact that short term rates in Botswana are very responsive to movements in the money markets rates in South Africa. The short run dynamics of the demand for money function shows the slow speed of adjustment to equilibrium of about 2.9 percent in the first quarter and this is reflective of the lack of sufficient availability of banking services and the low returns on financial assets which could allow economic agents to re-establish equilibrium levels of money holdings faster. The final parsimonious model obtained clearly reflects a well specified stable demand for money function. Therefore, based on the findings we can be precise in stating that targeting a monetary aggregate can be a viable policy for the monetary authorities in Botswana.
- Full Text:
- Date Issued: 2007
- Authors: Tsheole, Thapelo
- Date: 2007
- Subjects: Monetary policy -- Botswana , Demand for money -- Botswana , Botswana -- Economic conditions , Quantity theory of money
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:966 , http://hdl.handle.net/10962/d1002700 , Monetary policy -- Botswana , Demand for money -- Botswana , Botswana -- Economic conditions , Quantity theory of money
- Description: There has been extensive theoretical and empirical research on the subject of demand for money function. This particularly stems from the important role demand for money plays in macroeconomic analysis, especially in the design and implementation of monetary policy. The increase in studies, especially in developing countries, can also be attributed to a number of factors like: the impact of moving towards flexible exchange rate regimes, globalisation of financial markets, ongoing financial liberalisation, innovations in domestic financial products, the advancement in econometrics techniques and other country-specific events. This study estimates and examines the nature and stability of the demand for broad money (M2) in Botswana. This is particularly important in that the usefulness of a money demand function in the conduct of monetary policy depends crucially on its stability. The stability of the money demand function is crucial in that a stable money demand function would mean that the quantity of money is predictably related to a set of key economic variables linking money and the real economic sector. Therefore, this will help central banks to select appropriate monetary policy actions. Based on the findings, the study also proposes policy interventions. The vast majority of the literature on demand for money has underscored the fact that variable selection and representation, and the framework chosen are the two major issues relevant to modelling and estimation of the demand for money function. In modelling and estimating the demand for money function in Botswana, this study surveys a stream of theoretical and empirical literature on money demand in developed and developing countries, including countries that have similar financial sector similar to Botswana. Due consideration is also given to the macroeconomic and financial sector development in Botswana to help in the identification of the variables that are included in the demand for money equation. Most importantly, this helped in getting meaningful results that are free from theoretical and estimation problems. In particular, this study applied the multivariate cointegration approach as proposed by Johansen (1988) and Johansen and Juselius (1990) to estimate the relationship between broad money (M2), real income, interest rate, South African treasury bill rate, inflation rate and US dollar/pula bilateral exchange rate. The study obtains one unique long run relationship between money and the scale and opportunity cost variables. The coefficients of the long run relationship are then modelled along the general to specific approach as proposed by Campos, Ericsson and Hendry (2005). In this type of approach the general model is reduced by sequential elimination of statistically insignificant variables and checking the validity of the reductions at every stage to ensure congruence of the finally selected parsimonious model. In accordance with the economic quantity theory of money, the long run income elasticity obtained is 0.8021, which is close to the value one (unitary) suggested by economic theory. The coefficients of real income, exchange and inflation rate have the expected positive signs and were significant in the long run. Therefore, the long run demand for money (M2) in Botswana was found to be positively affected by real income, inflation rate and exchange rate. The lack of statistical significant of the own rate of money (88 day commercial bank deposit rate) and the foreign opportunity cost variable (South African Treasury bill rate) is attributed to multi-collinearity problems between these two interest rates. This could be caused by the fact that short term rates in Botswana are very responsive to movements in the money markets rates in South Africa. The short run dynamics of the demand for money function shows the slow speed of adjustment to equilibrium of about 2.9 percent in the first quarter and this is reflective of the lack of sufficient availability of banking services and the low returns on financial assets which could allow economic agents to re-establish equilibrium levels of money holdings faster. The final parsimonious model obtained clearly reflects a well specified stable demand for money function. Therefore, based on the findings we can be precise in stating that targeting a monetary aggregate can be a viable policy for the monetary authorities in Botswana.
- Full Text:
- Date Issued: 2007
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