Faculty of Commerce, Law and Management

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Subject: search.filters.subject.Derivatives

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    Characteristics of South African firms that hedge against foreign exchange risk
    (2012-01-19) Arnold, Katherine
    Increased globalisation of international business and operations results in an increase of firms facing foreign exchange risk. One of the ways to mitigate this risk is the use of currency derivatives to hedge this foreign exchange exposure. This research explores the characteristics of South African firms that use currency derivatives in contrast to those that do not. The data is collected and calculated from financial statement of firms listed on the main board of the JSE. The variables are tested using t-tests to accept or reject the hypothesis. There are five characteristics which are tested, level of foreign exchange exposure, firm size, propensity to bankruptcy, underinvestment in growth opportunities and level of managerial ownership. The findings for the theories on bankruptcy costs and managerial ownership affecting a firm’s decision to hedge are consistent with previous literature indicating that these characteristics are not significant in determining a firm’s policy on hedging. The literature also supports the test results for the theory on firm size and level of foreign exposure, stating that the larger firms and those with higher levels of foreign exposure are more likely to hedge their foreign exchange risk with the use of currency derivatives. In conflict with international trends high growth opportunities is not seen as significant within the South African context. The key finding is that firm size and level of foreign exchange are the prominent characteristics in the South African context when describing whether a firm will hedge it’s foreign exchange exposure with currency derivatives or not
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    Perceived Effectiveness of Responses to the Global Financial Crisis
    (2011-11-10) Palmer, Sean
    In 2007 an international financial crisis developed and specialised financial products known as credit derivatives appear to have been at the forefront of this crisis.  The purpose of this paper was to determine what solutions financial experts have suggested in controlling the perceived excesses of the credit derivatives industry. These solutions were then critically examined, by interviewing financial experts who deal in credit derivatives, to determine whether these solutions are appropriate and practical and thus produce the intended consequences of the regulations.  The method of the data collection was through the use of semi-structured interviews with financial experts who understand the complex credit derivatives industry. The sample was obtained using the Snowball referencing technique.  The key findings was that most of the six proposals extracted through the literature review process were either not deemed appropriate or practical (or both) and probably should either not be implemented or implemented with caution and forethought.  The key message is that regulations that are implemented without the input of the financial experts whose behaviour the regulations are designed to control are unlikely to succeed.
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    THE IMPACT OF SINGLE STOCK FUTURES ON THE
    (2011-04-12) Frasco, Joao Carlos
    Derivatives have become increasingly popular in the past two decades throughout the world’s leading financial markets. They have been accused by some of increasing the volatility of the underlying asset’s price. Volatility of asset prices is used extensively throughout the financial services industry, from valuing derivatives to estimating risk. Correctly estimating and forecasting volatility is important to ensure accurate pricing and understanding of risk. This research looks at data from South Africa to investigate the impact of Single Stock Futures on the volatility of the underlying stock. The main finding of this research is that there is no evidence to support increased volatility of the underlying stock due to the introduction of Single Stock Futures.