Liquidity derivatives as solution to Zimbabwean economic  liquidity problems

Wilbert Chagwiza

Department of Mathematics and Applied Mathematics, University of Venda, Bag X5050, Thohoyandou 0950, South Africa.

E-mail: wilbertchagwiza@gmail.com

Accepted 13 March 2013

Abstract

The Zimbabwean financial institutions and companies are faced with serious liquidity problems to meet their financial obligations since the inception of multi-currency system. The aim of this paper is to identify the source of current liquidity crisis and probable benefits of liquidity derivatives to ease economic liquidity problems. The Zimbabwe Stock Exchange listed OK Zimbabwe daily share price data from 19 February 2009 to 31 October 2012 was used. It has been found out that the market is the source of the current liquidity crisis. Therefore, it is strongly recommended that the ZSE should introduce the derivatives market which will ease the liquidity problems by attracting foreign investors, strengthening the monetary policy and security to would-be investors. Liquidity derivatives promote the optimization of commercial banks’ capital structure and improve profit making abilities.

Keywords: Liquidity derivatives, price velocity, price acceleration.

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