The Impediments and Evolution of Derivatives in Sub Sahara Africa

Wilbert Kudakwashe Chidaushe

doi:10.12944/jbsfm.01.0102.06

Abstract

The research follows on the Arusha declaration of 2005 and the global financial crisis of 2008 and explored the impediments and the evolution of derivatives in Sub Sahara Africa with special attention onZimbabwe, Botswana and South Africa. The research has been based on a review of literature of the seminal authors and through a conduct of questionnaire surveys in each of the three countries of Zimbabwe, Botswana and South Africa. The purpose of the study was to identify any disparities in the evolution of commodities and financial derivatives in the Sub-Saharan African countries. The study uncovered that registered banks in Botswana and Zimbabwe relied so much on the forward agreement to protect against financial risk. Credit default swaps (CDS), currency options and simple foreign exchange swaps also were relatively used in Botswana by most commercial banks to hedge against risk. In South Africa, a wide variety of simple and complex futures and options products are effectively applied on commodities and currencies to protect against financial losses. Rodrigues, Schwarz and Seeger (2012) noted that the initiation of formal derivative markets can accelerate growth in the economies and decrease the fluctuations of the Gross Domestic Product.

Highlights

A derivative was defined as a financial instrument with a value that is derived from the price of other basic underlying variables or traded assets
Derivative products are useful for price discovery of currencies, commodities, metals, energy products, metals and a variety of other products including in real estate.[1]
The respondents in Zimbabwe revealed that political factors (48%) and economic factors (65%) were a very big challenge and impediments of evolution of derivatives in Zimbabwe

Summary

Introduction

A derivative was defined as a financial instrument with a value that is derived from the price of other basic underlying variables or traded assets. Further it was reiterated that the derivatives can be reliant on almost any variable for instance from the prices of hogs and to the amount of snow falling at a specific place of resort. Derivative products are used to hedge against weather risk and price risk arising from the fluctuation of prices of currencies, commodities, energy products and metals. The main categories of derivatives that are applied globally. WILBERT, Journal of Business Strategy, Finance and Management, Vol 01(1), 54-68 (2018). Derivative products are useful for price discovery of currencies, commodities, metals, energy products, metals and a variety of other products including in real estate.[1]

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