The Effect of the Introduction of Dollar Futures on the Rand Dollar Exchange Rate in South Africa
Date
2011-06-24
Authors
Twala, Khulekani
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Abstract
Financial Derivatives are some of financial markets innovations that have been the subject of debate particularly with respect to their impact on the volatility of the price of the underlying asset. These instruments have been thought to have increased the volatility of the underlying asset‟s price, while some have praised them for decreasing the volatility of the price of the asset. The variability of volatility may create uncertainty about future prices and profits and may therefore impair long term investment decisions; consequently it is important to understand the factors of volatility. This research looks at the rand dollar exchange rate data to investigate the effect of the introduction of rand dollar futures in the foreign exchange rate market. The main finding of this research is that there is evidence to suggest that the introduction of rand dollar futures has lead to the decrease in the volatility of the rand dollar exchange rate. This paper adds value to the existing literature on the impact of derivatives securities on underlying assets, in this case the exchange rate
Description
MBA - WBS
Keywords
Rand dollar exchange rate, Dollar futures