BINDURA UNIVERSITY OF SCIENCE EDUCATION

FACULTY OF COMMERCE

SURNAME TAKAEDZA
FORNAME TINASHE
REG NO B0823516
PLACE OF ATTACHMENT FBC FINANCIAL HOLDINGS
DEPARTMENTS ATTACHED E-COMMERCE
PROJECT PERIOD DECEMBER 2010 TO AUGUST 2011
PROJECT SUPERVISOR MRS MUTENGEZANWA

Research Topic: An investigation on the effects of liquidity crisis on the operations of the
securities market. A case of FBC Holdings (FBC securities).
 TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION
1.0 Executive summary
1.1 Background to the study
1.2 Problem statement
1.3 Purpose of the study
1.4 Research objectives
1.5 Research questions
1.6 Importance of the study
1.7 Assumptions of the study
1.8 Delimitations of the study
1.9 Limitations of the study
1.10 Defination of terms
1.11 Chapter summary
CHAPTER 2: LITERATURE REVIEW
2.0 Introduction
2.1 Reasons for literature review
2.2 Previous findings
2.2.1 Liquidity crisis
2.2.2 Securities market
2.2.3 Functions of securities market
2.2.4 Levels of securities market
2.2.5 Main financial instruments
2.4 Chapter summary
CHAPTER 3: RESEARCH METHODOLOGY
3.0 Introduction
3.1 Research design
3.2 Research Instruments
3.2.1Telephone interview

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3.2.2 Questionnaire………………………………………………………………....................
3.2.3 Observation
3.3 Primary Data
3.4 Secondary Data
3.5 Target Population
3.6 Data collection
3.8 Data analysis procedures
4.0 Referance

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 CHAPTER 1

INTRODUCTION

1.0 Introduction
This chapter introduces the research problem , explores the background giving rise to this
problem this will include a brief history of the organisation and it defines the statement of the
problem in conjunction with the purpose of the study. Furthermore , research questions will be
outlined, assumptions upon which the study is based will be stated as well as the significance of
the study. The chapter goes further to delimit the scope of the study , listing the limitations
encountered by the researcher . The chapter will be enveloped with the definition of terms.

1.1 Background of the study

FBC Holdings is a financial powerhouse and a product of a successful merger and acquisition of
First Bank, Southern Africa Re-insurance Company (SARE) and Zimbabwe building Society.
The good reasons of coming together among others were to enhance security, diverse products
and convenience to the customer at large.

The Holding Company was then listed on the Zimbabwe Stock Exchange (ZSE) on August 26
2004 and the formation of FBC Securities (Private Limited) proceeded which is a registered
Stock Broking company and a wholly owned subsidiary of FBC Holdings limited . FBC
Securities (Private) Limited operates as a stock broking company in Zimbabwe. It facilitates
equities trading at the Zimbabwe Stock Exchange on behalf of clients. The company offers
research services in the areas of economics, equities, and statistics; and advisory services on
portfolio mix for clients’ investment needs. It also provides private portfolio management and
sponsoring broker services, as well as safe custody facility for scrip. The company was founded
in 2005 and is based in Harare, Zimbabwe.

With a decline in the Zimbabwean economy, hyperinflation rendered the Zimbabwean dollar
useless this led to a three month closure of ZSE on the 17th of November 2008 this also resulted
in FBC Securities ltd stopping its operations.

Following an inclusive government in the country, the economy adopted the use of multi
currency trading hence this brought sanity on the stock market as it started its operations on the
19th of February 2009 boosting confidence in investors to take part in trading on the stock
market.

However trading on the stock market has been largely low, mainly due to market illiquidity,
foreign participation has remained subdued with investments. This also have affected FBC
Securities ltd because most of its clients are selling off their shares which they hold in different
portfolios, on this market buying and selling of shares must prevail but it can be noted that a

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bigger number of clients are being found on the selling side hence it brings in an imbalance in
the securities system.

FBC Securities market is comprised of the deficits units and surplus units where the latter
possesses excess cash hence will tend to invest this cash in assets available on the securities
market while the former refers to those clients who are in need of cash hence they will sell off
their assets which they hold on the market. Due to liquidity constraints FBC Securities has found
that the deficits units are more dominant on the market since the majority of its clients are not
investing in assets available , with this background this paper seeks to find out how the securities
market can operate efficiently in an illiquid economy such that by the end of this study there will
be a balance as far as trading is concerned that is a balanced trading between deficits units and
surplus units.

1.2 Statement of the problem

During the Zimbabwean dollar era operations of the stock market came to a halt, after three
months there was an introduction multicurrency in our economy which brought action this also
resulted in FBC Securities starting to issue out its equities on the stock market, profits started to
generate compared to the time we used our own currency.

However FBC Securities faced a its biggest challenge as far as trading of securities in an illiquid
economy that is most of its clients started to sell off their assets and only a few clients came to
make investments in equities thereby causing an imbalance in the trading of equities and this
caused FBC Securities to have more deficits units in its portfolio.
FBC securities is facing a liquidity crunch since RBZ is not performing its function of being a
lender of the last resort hence most of the investors are selling their assets because they are in
need of cash. This makes the stock market to be less competitive in the region this scares away
foreign investors thereby causing an economic problem of an increased unemployment rate as
seen by retrenchment at FBC Securities ltd and other companies this is due to less activity at the
stock market even the share price is not gaining to the maximum point because there is more
supply of shares being sold on the market hence the price will be lower resulting in lower
returns.
Therefore this study seeks to investigate the effects of liquidity crisis on the operations of FBC
Securities on the stock market and what can be done to reduce the effects of liquidity crisis.

1.3 Purpose of study

The study seeks out to investigate the effects of liquidity crisis on the operation of securities
markets as well as its performance on the stock exchange during times of liquidity crisis. The
study also seeks out to give out the importance of liquidity and how to operate securities markets
efficiently in an illiquid economy.
Furthermore, the study seeks to come up with what can be done to reduce the number of deficits
units on FBC Securities since clients are busy disposing off their assets instead to do exchange
between the deficits units and surplus units upon its operations on the securities markets.

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1.4 Research objectives

The study seeks to:

To determine the relationship between securities markets and liquidity crisis
To investigate the effects of lack of cash on primary markets
To find out the effects of liquidity crisis on secondary markets
To find out if securities market can operate efficiently in an illiquid market
To asses the conditions necessary for securities markets to operate efficiently

1.5 Research questions

The following questions will be answered after the study has been completed:
What is the relationship between the securities market and liquidity crisis?
What are the effects of lack of cash on primary markets?
What are the effects of liquidity crisis on secondary markets?
Can securities markets operate efficiently and effectively in an illiquid economy?
What are the conditions necessary for securities markets to operate efficiently?

1.6 Importance of the study

To FBC Securities

The study seeks to help FBC Securities market to increase its sales volumes in an illiquid
economy and how to operate efficiently in this kind of economy.

To establish the link between a securities market and the liquidities of an economy and
recommending the right products suitable for the securities markets in an illiquid economy

To the university

The research is going to act as a guide line to students at the university as it will be used as
literature review to related projects.
The research is going to add knowledge to the students at the university and is going to equip
them on how securities markets operate.

To the students

This research project will enrich the students with comprehensive knowledge on security market
operations.
The study will also be an eye opener to other students to develop research gaps hence it is going
to inspire other scholars to do further research in this area.

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The students will be able to gain practical knowledge of what is happening in the securities
industry.

1.7 Assumptions

The following assumptions will be applied so as to ensure accurate findings:

Respondents under study will cooperate so as to acquire the most accurate findings.

That all responses provided by the interviewees and questionnaire respondents are true facts.

The findings attained at FBC securities ltd applies to most of securities firms in Zimbabwe.

1.8 Delimitations of the study

This study will be limited to FBC HOLDINGS LTD in Harare the reason being that there is
more action in Harare on trading of securities market in times of liquidity crisis.

The study will cover the period from 2008 to 2011 since it is the period when the dollarisation
was introduced hence the study will be centred on
 FBC Holdings limited as a major case study under FBC Securities ltd based in
Samora Machel Harare
1.9 Limitations of the study

In conducting the study number of limitations have been taken into consideration, these
include:
FBC Securities did not want to expose their information for confidentiality purposes such that
some of the information was deemed confidential.

The researcher also did not have adequate financial resources to conduct a full time study of all
stock broking firms in Zimbabwe.

1.10 Definition of terms

Banking crisis (BC)- according to the “Economist help” BC is a collapse in the money supply, a
credit crunch, a trade implosion, mass unemployment, an atomized GDP, and the gears of
industry and commerce grinding to a crashing halt leading to sudden insolvency or illiquid of a
bank.

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Business environment- Business Environment may be defined as a set of conditions – Social,
Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the
functioning of organization.

Inflation - according to the ‘economics help’ Inflation means a sustained increase in the
aggregate or general price level in an economy.

Stabilizing the economy- it is to prevent drastic fluctuations in prices and in the exchange rate
this was postulated by the dictionarist.

multi currency- according to Wikipedia it refers to a financial service which allows businesses
to price goods and services in a variety of foreign currencies for example in use of US dollars
and Rands.

illiquid economy- according to investopedia this term implies the state of an economy that
cannot easily sell or exchange its securities or other asset for cash and also cannot be sold
quickly because of a lack of ready and willing investors or speculators to purchase such assets or
securities.

stock exchange- Wikipedia reviews that A stock exchange is an entity that provides "trading"
facilities for stock brokers and traders to trade stocks, bonds, and other securities.

Securities market- Wikipedia stipulates that a Securities market is an economic institute within
which take place sale and purchase transactions of securities between subjects of economy on the
base of demand and supply.
RE-insurance- according to Jeff Katz Reinsurance means one insurance company purchasing
coverage from a second insurance company for a risk that the first insurance company is
insuring.

liquidity crisis- According to Wikipedia the term liquidity crisis refers to a "general feeling of
mistrust in the banking system" conducting to a temporary disappearance of credit hence it can
be called an economic crisis.

1.11 Summary

The fundamental elements of this introductory chapter was to present the research topic,
background of the study, statement of problem and to give an insight of objectives of the study
and its significance .Definition of terms where also implemented in this chapter.

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter will focus on the literature review which presents the conceptual frame work and
the previous findings related to the problem understudy.

Zimbabwe’s current economy is on recovery due to the introduction of multi-currency it can be

noted that the industries are now breathing a fresh air and they have started to trade in their
respective industries hence this also applies to the securities markets where trading came a halt in
the Zimbabwean dollar era and as of now it has resuscitated it duties.

However the operations of securities market has been hampered by liquidity crisis which has
resulted in players of this industry being involved in only selling of shares this implies that
everyone in the securities market is seeking for hard cash whereas in other markets like the
London stock exchange(LSE) and New York stock exchange (NYSE) funds are transferred from
surplus units(players who buy shares since they have excess cash) to deficits units (players who
sell shares since they are in need of cash).

In this chapter the author attempts to investigate and analyse the findings from related literature
about the operation of securities markets in an illiquid market.

This chapter reviews authoritative literature in the key areas of this research which are mainly:
 Liquidity crisis
 Securities market

 Functions of securities market

 Levels of securities market

 Main financial instruments

 What is the relationship between the securities market and liquidity crisis?
 What are the effects of lack of cash on primary markets?
 What are the effects of liquidity crisis on secondary markets?
 Can securities markets operate efficiently and effectively in an illiquid economy?
Discuss.
 What are the conditions

2.1 Reasons for literature review

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According to Dellinger, A. (2005) a literature review is a body of text that aims to review the
critical points of current knowledge including substantive findings as well as theoretical and
methodological contributions to a particular topic. Literature reviews are secondary
sources, and as such, do not report any new or original experimental work.
Furthermore, Cooper (1998) says a literature review uses as its database reports of primary or
original scholarship, and does not report new primary scholarship itself.  The primary reports
used in the literature may be verbal, but in the vast majority of cases reports are written
documents. The types of scholarship may be empirical, theoretical, critical/analytic, or
methodological in nature.

Thus the researcher is going to outline reasons for literature review:

 It describes, summarises, evaluates, clarifies and/or integrates the content of primary
reports.
 According to (Bruce 1994) the review provides the background to and justification for
the research undertaken and it has six elements. These elements comprise a list; a search;
a survey; a vehicle for learning; a research facilitator; and a report

According to Bourner (1996) there are good reasons for spending time and effort on a review of
the literature before embarking on a research project.  These reasons include:

 to identify gaps in the literature

 to avoid reinventing the wheel (at the very least this will save time and it can stop you
from making the same mistakes as others)
 to carry on from where others have already reached (reviewing the field allows you to
build on the platform of existing knowledge and ideas)
 to identify other people working in the same fields (a researcher network is a valuable
resource)
 to increase your breadth of knowledge of your subject area
 to identify seminal works in your area
 to provide the intellectual context for your own work, enabling you to position your
project relative to other work
 to identify opposing views
 to put your work into perspective
 to demonstrate that you can access previous work in an area
 to identify information and ideas that may be relevant to your project
 to identify methods that could be relevant to your project

More so the other purposes of literature review as postulated by Bell, J. are to provide the reader
with an up to date account and discussion of the research findings in a particular topic. This
might sound pretty esoteric but you will find that in writing a literature review you will learn
about the ways other people have constructed their own research projects. Seeing what others
have done might help you understand your own assignment. You might be able to see the
methods that other more experienced researchers have used and you might decide to follow on

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their footsteps and copy their methodological approach.

All in all (Afolabi 1992) stipulates that a good literature review requires knowledge of the use
of indexes and abstracts, the ability to conduct exhaustive bibliographic searches, ability to
organise the collected data meaningfully, describe, critique and relate each source to the subject
of the inquiry, and present the organised review logically, and last, but by no means least, to
correctly cite all sources mentioned hence the researcher  is going to implement the tactics of
Afolabi thoroughly.

2.3 Previous findings

The researcher will dwell on the following findings where the researcher will be acknowledging
information from renowned authors about liquidity crisis and operation of securities markets.

2.3.1 Liquidity crisis

According to Wikipedia the term liquidity crisis may refer to:

 a "general feeling of mistrust in the banking system" conducting to a temporary

disappearance of credit;
 a lack of cash experienced by one particular business;
 the term is sometimes used as a synonym of credit crunch.

Liquidity crisis as an economic crisis

Nouriel Roubini describes credit crunch as a sharp increase in the interest rates and a strong
decrease in allocated credits whilst liquidity crisis occurs when a business experiences a lack of
cash required to grow the business, pay for day-to-day operations, or meet its debt obligations
when they are due, causing it to default. When "liquidity crisis" is used to refer to an economy as
a whole it means that liquidity crises affecting principal players in the economy are resulting in
diminished availability of credit.

When a liquidity crisis occurs, it is vital that the stakeholders accurately and objectively assess
whether the business is viable and ultimately can succeed with the injection of further cash to
stave off insolvency, or whether it is incapable of surviving long term in the current
market. The financier or bank lender is often the ultimate arbiter of whether a business
survives a liquidity crisis or not.

The decision whether to "trade through" a liquidity crisis or declare bankruptcy is quite possibly
the most difficult and complex decision any business leader can face.

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2.3.2 Securities market

According to Wikipedia a Securities market is an economic institute within which take place sale
and purchase transactions of securities between subjects of economy on the base of demand and
supply. Also we can say that securities market is a system of interconnection between all
participants (professional and nonprofessional) that provides effective conditions: to buy and sell
securities,

 to attract new capital by means of issuance new security (securitization of debt),

 to transfer real asset into financial asset,
 to invest money for short or long term periods with the aim of deriving profit.

2.3.3 Functions of securities market

The common market functions of securities market:

 commercial function where by securities markets will derive profit from operation on this
market
 Price determination that is Demand and Supply balancing, the continuous process of
prices movements guarantees to state correct price for each security So, the market
corrects mispriced securities
 Informative function where by market provides all participants with market information
about participants and traded instruments
 Regulation function which means securities market creates the rules of trade, contention
regulation, priorities determination

 Transfer of ownership that is securities markets transfer existing stocks and bonds from
owners who no longer desire to maintain their investments to buyers who wish to
increase those specific investments. There is no net change in the number of securities in
existence, for there is only a transfer of ownership. The role of securities market is to
facilitate this transfer of ownership. This transfer of securities is extremely important, for
securities holders know that a secondary market exists in which they may sell their
securities holdings. The ease with which securities may be sold and converted into cash
increases the willingness of people to hold stocks and bonds and thus increases the ability
of firms to issue securities
 Insurance (hedging) of operations through securities market options, futures, swaps and
forwards

2.3.4 Levels of securities market

Primary market

The primary market is that part of the capital markets that deals with the issue of new
securities. Companies, governments or public sector institutions can obtain funding through the
sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers.

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The process of selling new issues to investors is called underwriting. In the case of a new stock
issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the
price of the security offering, though it can be found in the prospectus. Primary markets creates
long term instruments through which corporate entities borrow from capital market.

Features of primary markets are:

 This is the market for new long term equity capital. The primary market is the market
where the securities are sold for the first time. Therefore it is also called the new issue
market (NIM).
 In a primary issue, the securities are issued by the company directly to investors.
 The company receives the money and issues new security certificates to the investors.
 Primary issues are used by companies for the purpose of setting up new business or for
expanding or modernizing the existing business.
 The primary market performs the crucial function of facilitating capital formation in the
economy.
 The new issue market does not include certain other sources of new long term external
finance, such as loans from financial institutions. Borrowers in the new issue market may
be raising capital for converting private capital into public capital; this is known as
"going public."
 The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are:

 Initial public offering;

 Rights issue (for existing companies);

 Preferential issue.

Secondary Market

The secondary market, also known as the aftermarket, is the financial market where previously
issued securities and financial instruments such as stock, bonds, options, and futures are bought
and sold. The term "secondary market" is also used to refer to the market for any used goods or
assets, or an alternative use for an existing product or asset where the customer base is the
second market (for example, corn has been traditionally used primarily for food production and
feedstock, but a "second" or "third" market has developed for use in ethanol production). Stock
exchange and over the counter markets.

With primary issuances of securities or financial instruments, or the primary market, investors
purchase these securities directly from issuers such as corporations issuing shares in an IPO or
private placement, or directly from the federal government in the case of treasuries. After the
initial issuance, investors can purchase from other investors in the secondary market.

The secondary market for a variety of assets can vary from loans to stocks, from fragmented to
centralized, and from illiquid to very liquid. The major stock exchanges are the most visible

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example of liquid secondary markets - in this case, for stocks of publicly traded companies.
Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange
provide a centralized, liquid secondary market for the investors who own stocks that trade on
those exchanges. Most bonds and structured products trade “over the counter,” or by phoning the
bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan Exchange.

Method of issuing securities in the secondary markets

Over-the-counter market

Over-the-counter (OTC) or off-exchange trading is to trade financial instruments such as stocks,

bonds, commodities or derivatives directly between two parties. It is contrasted with exchange
trading, which occurs via facilities constructed for the purpose of trading (i.e., exchanges), such
as futures exchanges or stock exchanges. In the U.S., over-the-counter trading in stock is carried
out by market makers that make markets in OTC Bulletin Board (OTCBB) and Pink Sheets
securities using inter-dealer quotation services such as Pink Quote (operated by Pink OTC
Markets) and the OTCBB.

OTC stocks are not usually listed nor traded on any stock exchanges, though exchange listed
stocks can be traded OTC on the third market. Although stocks quoted on the OTCBB must
comply with U.S. Securities and Exchange Commission (SEC) reporting requirements, other
OTC stocks, such as those stocks categorized as Pink Sheets securities, have no reporting
requirements, while those stocks categorized as OTCQX have met alternative disclosure
guidelines through Pink OTC Markets. An over-the-counter contract is a bilateral contract in
which two parties agree on how a particular trade or agreement is to be settled in the future. It is
usually from an investment bank to its clients directly. Forwards and swaps are prime examples
of such contracts. It is mostly done via the computer or the telephone. For derivatives, these
agreements are usually governed by an International Swaps and Derivatives Association
agreement.

This segment of the OTC market is occasionally referred to as the "Fourth Market."

The NYMEX has created a clearing mechanism for a slate of commonly traded OTC energy
derivatives which allows counterparties of many bilateral OTC transactions to mutually agree to
transfer the trade to ClearPort, the exchange's clearing house, thus eliminating credit and
performance risk of the initial OTC transaction counterparts.

2.2.5 Main financial instruments

Bond, Promissory note, Cheque – a security contains requirement to make full payment to the
bearer of cheque , Certificate of deposit, Bill of Lading (a Bill of Lading is a “document
evidencing the receipt of goods for shipment issued by a person engaged in the business of
transporting or forwarding goods." ), Stock.

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Promissory note

A promissory note, referred to as a note payable in accounting, or commonly as just a

"note", is a contract where one party (the maker or issuer) makes an unconditional promise in
writing to pay a sum of money to the other (the payee), either at a fixed or determinable future
time or on demand of the payee, under specific terms. They differ from IOUs in that they contain
a specific promise to pay, rather than simply acknowledging that a debt exists.

Certificate of deposit

A certificate of deposit or CD is a time deposit, a financial product commonly offered to

consumers by banks, thrift institutions, and credit unions. CDs are similar to savings accounts in
that they are insured and thus virtually risk-free; they are "money in the bank" (CDs are insured
by the FDIC for banks or by the NCUA for credit unions). They are different from savings
accounts in that the CD has a specific, fixed term (often three months, six months, or one to five
years), and, usually, a fixed interest rate. It is intended that the CD be held until maturity, at
which time the money may be withdrawn together with the accrued interest.

Bond

Bond - an issued security establishing its holder's right to receive from the issuer of the bond,
within the time period specified therein,

 its nominal value

 and the interest fixed therein on this value or other property equivalent.

The bond may provide for other property rights of its holder, where this is not contrary to
legislation.

Bill of lading

A bill of lading (sometimes referred to as a BOL,or B/L) is a document issued by a carrier to a

shipper, acknowledging that specified goods have been received on board as cargo for
conveyance to a named place for delivery to the consignee who is usually identified. A thorough
bill of lading involves the use of at least two different modes of transport from road, rail, air, and
sea. The term derives from the verb "to lade" which means to load a cargo onto a ship or other
form of transportation.

A bill of lading can be used as a traded object. The standard short form bill of lading is evidence
of the contract of carriage of goods and it serves a number of purposes:

 It is evidence that a valid contract of carriage, or a chartering contract, exists, and it may
incorporate the full terms of the contract between the consignor and the carrier by
reference (i.e. the short form simply refers to the main contract as an existing document,
whereas the long form of a bill of lading (connaissement intégral) issued by the carrier
sets out all the terms of the contract of carriage);

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  It is a receipt signed by the carrier confirming whether goods matching the contract
description have been received in good condition (a bill will be described as clean if the
goods have been received on board in apparent good condition and stowed ready for
transport); and
 It is also a document of transfer, being freely transferable but not a negotiable instrument
in the legal sense, i.e. it governs all the legal aspects of physical carriage, and, like a
cheque or other negotiable instrument, it may be endorsed affecting ownership of the
goods actually being carried. This matches everyday experience in that the contract a
person might make with a commercial carrier like FedEx for mostly airway parcels, is
separate from any contract for the sale of the goods to be carried, however it binds the
carrier to its terms, irrespectively of who the actual holder of the B/L, and owner of the
goods, may be at a specific moment.

Stocks (Shares)

Common shares

Common Shares represent ownership in a company and a claim (dividends) on a

portion of profits. Investors get one vote per share to elect the board members, who oversee the
major decisions made by management. Over the long term, common stock, by means of capital
growth, yields higher returns than almost every other investment. This higher return comes at a
cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the
common shareholders will not receive money until the creditors, bondholders, and preferred
shareholders are paid.

Preferred Stock

Preferred Stock represents some degree of ownership in a company but usually doesn't come
with the same voting rights. (This may vary depending on the company.) With preferred shares
investors are usually guaranteed a fixed dividend forever. This is different than common stock,
which has variable dividends that are never guaranteed. Another advantage is that in the event of
liquidation preferred shareholders are paid off before the common shareholder (but still after
debt holders). Preferred stock may also be callable, meaning that the company has the option to
purchase the shares from shareholders at anytime for any reason (usually for a premium). Some
people consider preferred stock to be more like debt than equity. A good way to think of these
kinds of shares is to see them as being in between bonds and common shares.

2.4 Chapter summary

The researcher has thoroughly introduced the chapter ,reasons for literature review have also
been highlighted hence the researcher dwelt on previous findings of liquidity crisis and what
comprises the securities market and this paves way for chapter 3 which is all about research
methodology.

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CHAPTER 3: RESEARCH METHODOLOGY

3.0 Introduction

It is of paramount importance to know the very best way to obtain the information that is
relevant to this study. The research design will help the researcher in guiding towards achieving
objectives of the research. In order to answer research problem the researcher will go to different
places collecting data thus the chapter will focus on how the data will be collected, hence it seeks
to address the main objectives of this research and it entails the research design that is data
collection methods, sampling and potential limitations of this exercise.

FBC securities will be used as a case study from the period of 01 December 2010 to 30 August
2011.The following research instruments will be used under this study which are questionnaires,
telephone interview, electronic feedback and observations, thus this section includes
identification of data sources, sample selection, questionnaire design, data collection, data
analysis and sample design.

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3.1 Research design

All elements in a research project are inextricably intertwined if and only if there is a research
design which is a programme that guides the researcher in data analysis and data collection not
forgoing interpretation of observation by developing a hypothesis and then adopting the most
appropriate strategy. Research design is an action plan that leads to a final destination that is
from a place of questions to a place of answers. Seita (1959) gives the definition of research
design as the arrangement of conditions for the collection and analysis of data in a manner that
aims to combine relevance to the research purpose with economy in procedure. Thus the research
design describes the procedures taken by the researcher to ensure validity of research. Research
designs are concerned with turning the research question into a testing project. The best design
depends on your research questions. Every design has its positive and negative sides.

Research design can be divided into fixed and flexible research designs (Robson, 1993). Others
have referred to this distinction with ‘quantitative research designs’ and ‘qualitative research
designs’. However, fixed designs need not be quantitative, and flexible design need not be
qualitative. In fixed designs the design of the study is fixed before the main stage of data
collection takes place. Fixed designs are normally theory-driven; otherwise it’s impossible to
know in advance which variables need to be controlled and measured. Often these variables are
quantitative. Flexible designs allow for more freedom during the data collection. One reason for
using a flexible research design can be that the variable of interest is not quantitatively
measurable, such as culture. In other cases, theory might not be available before one starts the
research.

Experimental design.

In an experimental design, the researcher actively tries to change the situation, circumstances or
experience of participants (manipulation), which leads to a change in behaviour of the
participants of the study. The participants are assigned to different conditions, and variables of
interest are measured. All other variables are controlled Experiments are normally highly fixed
before the data collection starts. Read more about experimental research designs here
Experiment.

Non-experimental research designs

Non-experimental research is almost the same as experimental research, the only difference is
that non-experimental research does not involve a manipulation of the situation, circumstances or
experience of the participants. Non-experimental research designs can be split up in three
designs. First, relational designs, in which a range of variables is measured. These designs are
also called correlational studies, since the correlation is most often used analysis. The second
type is comparative designs. These design compare two natural groups. The third type of non-
experimental research is a longitudinal design.

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Quasi experiment

Quasi research designs are research design that follow the experimental procedure, but do not
randomly assign people to (treatment and comparison) groups.

Examples of flexible (qualitative) research designs

Case study
According to Yin, Robert K. (2003). case study is a story about something unique, special, or
interesting stories can be
about individuals, organizations, processes, programs, neighbourhoods, institutions, and
even events. The case study gives the story behind the result by capturing what happened
to bring it about, and can be a good opportunity to highlight a project’s success, or to
bring attention to a particular challenge or difficulty in a project

In a case study, one single unit is extensively studied. This case can be a person, organization,
group or situation. Famous case studies are for example the descriptions about the patients of
Freud, who were thoroughly analysed and described. Read more on case study. Bell (1999) states
“a case study approach is particularly appropriate for individual researchers because it gives an
opportunity for one aspect of a problem to be studied in some depth within a limited time scale”.

Ethnographic study

This type of research is involved with a group, organisation, culture, or community. Normally
the researcher shares a lot of time with the group.

Grounded theory study

The aim of grounded theory studies is to make theories that can explain certain events.

Preferred research design Case study

A case study will be used as a research design which is a research strategy since one single unit
is extensively studied and gives an opportunity for one aspect of a problem to be studied in some
depth within a limited time scale , a pragmatic examination that investigates a fact within its real
life context. Hence the case study will be a collective study encircling both quantitative and
qualitative data, and multiple sources of data will be used.

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According to Colorado State University case study refers to the collection
and presentation of detailed information about a particular participant or small group, frequently
including the accounts of subjects themselves. A form of qualitative descriptive research, the
case study looks intensely at an individual or small participant pool, drawing conclusions only
about that participant or group and only in that specific context. Researchers do not focus on the
discovery of a universal, generalisable truth, nor do they typically look for cause-effect
relationships; instead, emphasis is placed on exploration and description.

orum F (1991) postulates that a case study is an ideal methodology, when a holistic, in depth
investigation is needed, for the researcher to come up with accurate information the study will
adopt a holistic approach using both quantitative and qualitative information. The researcher
anticipates that the qualitative research methods will help in giving subjective understanding the
thoughts, feelings and perception of players in the securities market.

The research will have an analysis on current activities on the securities market between the
periods of 01 December 2010 to 31 August 2011. Although the research design has some
weaknesses which are subjectivity in the implementation, presentation and evaluation of the case
study which implies that the interpretation of data will done on a personal perspective.
Types of case study

The following types of case studies were postulated by Colorado State University

 Illustrative Case Studies

These are primarily descriptive studies. They typically utilize one or two instances of an
event to show what a situation is like. Illustrative case studies serve primarily to make the
unfamiliar familiar and to give readers a common language about the topic in question.
 Exploratory (or pilot) Case Studies
These are condensed case studies performed before implementing a large scale
investigation. Their basic function is to help identify questions and select types of
measurement prior to the main investigation. The primary pitfall of this type of study is
that initial findings may seem convincing enough to be released prematurely as
conclusions.
 Cumulative Case Studies
These serve to aggregate information from several sites collected at different times. The
idea behind these studies is the collection of past studies will allow for greater
generalization without additional cost or time being expended on new, possibly repetitive
studies.

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Critical Instance Case Studies
These examine one or more sites for either the purpose of examining a situation of unique
interest with little to no interest in generalisability, or to call into question or challenge a highly
generalized or universal assertion. This method is useful for answering cause and effect
questions

The Advantages and Limitations of a Case Study

Yin, Robert K. (2003) analyses the following advantages and limitation of using case studies

 The primary advantage of a case study is that it provides much more detailed information
than what is available through other methods, such as surveys.
 Case studies also allow one to present data collected from multiple methods (that is,
surveys, interviews, document review, and observation) to provide the complete story
However case studies also have limitation which are

 Can be lengthy because they provide detailed information about the case in narrative
form, it may be difficult to hold a reader’s interest if too lengthy.
 case studies lack rigor that is case studies have been viewed in the evaluation and
research fields as less rigorous than surveys or other methods. Reasons for this include
the fact that qualitative research in general is still considered unscientific by some and in
many cases

3.2 Research Instruments

The researcher will use multiple sources of data that is telephone interviews, questionnaires,
observation, case study and electronic feedback systems.

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3.2.1 Telephone interview

The researcher will collect data from the management through the use of the interview
technique. Brink (1996:154) defines an interview as a method of data collection in which an
interviewer obtains responses from the subject in a face-to-face encounter, Kotler P (1994)
argues that telephone interviewing is the best method of gathering information quickly and it
provides greater flexibility than questionnaires. This is why the researcher has chosen this
method.

Advantages of telephone interview

 A researcher can get information from anyone that is illiterate or semi illiterate people.
 People are more willing to talk than write hence the researcher will get information from
the respondent which would not be obtained otherwise.
 By raising or lowering one's voice or rephrasing the words more information may be
obtained.
 It allows greater sample control and the response rate tends to be high

Disadvantages of telephone interview

 Only the subjects with telephones are contacted.

 Cohen and Manion (1980:245) put forward that respondents may feel uneasy and adapt
avoidance tactics if the questioning is too deep.
 Using an interview increase flexibility but introduces bias.

3.2.2 Questionnaire

Questionnaires will be used because they provide questions that are straight to the point
limiting data bias. Moorhead and Griffin (1985:132) postulates that a questionnaire is a
collection of written questions about the respondent’s attitudes, opinions, perceptions and
demographic characteristics therefore questionnaires were used to collect data in the securities
market

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The information gained from the questionnaire is often subjected to statistical analysis. The data
for the study will be obtained through a non-disguised structured questionnaire.
Kotler (1996), described as both factual and subjective questions.

Advantages
 they provide an efficient way of collecting responses from a large sample
 cheap to implement since Questionnaires will be quite inexpensive to administer.

 They allow for a large sample spread over a wide area to be surveyed.
 There is uniform question presentation and no middle-man bias. There are no visual or
verbal cues to influence the respondent hence the respondents will give accurate
information.
 Uniformity as each respondent will receive the identical set of questions there by
increasing the validity of collected

 Clarity ensures that respondents fully understand.

 Interviews also have great flexibility in terms of sampling and special observations.

 Interviews expose areas that the respondent is unwilling to discuss and inconsistencies in
responses. They provide the opportunity to persuade for answers

Disadvantages

 There is a possibility of low response rate which can lower confidence in the results.
 Inability to probe responses.
 Gestures and other cues are not available with written questionnaires
 May be answered by someone other than the intended person.

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3.2.3 Observation

This method involves systematic observation, recording, description, analyzing and

interpretation of people's behaviour. The researcher will use participant observation and direct
observation.

3.2.3.1 Participant observation

This is a type of research where the researcher will take part with the subjects under study. This
method is particularly useful for researchers working within their organizations, hence its
application in this research.

Advantages

 This method affords the researcher an opportunity to experience for real the emotions of
those who are being researched.
 Insightful into interpersonal behaviour
 It is good at explaining what is going on in a particular situation.

Disadvantages

 It can be very time consuming

 The researcher is faced with role conflict, which is researcher versus colleague.
 Observer bias
 Data recording is often difficult

3.2.3.2 Direct observation

Advantages

 This method affords the researcher an opportunity to experience for real the emotions of
those who are being researched
 Can be used to obtain information that people are unwilling or unable to provide.

Disadvantages

 Time consuming

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  The researcher selects activities and therefore might miss facts
 Observer's presence might cause change (reflexivity).

Since every research instrument has its weaknesses, the researcher used various instruments for
them to complement each other.

The researcher has also collected both primary and secondary data to adequately address the
main objectives of this research.

3.3 Primary research

Primary research is the collection of data, which is done to meet specific needs at hand. In this
study, data was mainly qualitative. The major drawback of the primary research is that it was
time consuming and expensive to conduct.
The researcher will gather data through conducting in-depth personal interviews, observations,
surveys, mystery shopping, staff product knowledge test, focus groups and telephone interviews.
In this research, the researcher will collect non numerical data, which is qualitative in nature. It
spells out attitudes, beliefs and behaviour. In this study, the data will be collected in order to
understand the behaviour of security market players as regards to the illiquid of an economy

Primary data is collected for a specific research, which also makes this type of information much
more demanding in time and costs. Primary data can be found by conducting an interview or by
sending out a questionnaire, which will be filled in by the respondent and sent back. The data
obtained will then be interpreted into meaningful information. In order for the researcher to
establish informative and conclusive findings, two interview guides and a structured
questionnaire were used as the primary data collection tools.

 Advantages of Primary Research

 Data collected is first hand, not distorted and up-to-date.

 It is more consistent with research question and objectives and its interpretation will

provide the research with reliable information.

Disadvantages

 It is time consuming and expensive to administer

25
  Response rate may be low because there is no definite assurance that all correspondence

will respond.

3.4 Secondary Data

Secondary data refers to data that already exists and was collected for some other uses other than
the researcher want to use it. Wegner (2002) postulates that secondary data constitutes the
information collected by others for the purpose other than the problem at hand. Secondary data is
the most easily accessible data and saves the researcher the trouble of going through the tiresome
process of collecting data personally. Amongst the list of advantages of secondary data are:

 it is readily available;
 quite inexpensive;
 saves time and effort; and provides a basis for comparison.

Secondary research will be conducted to collect information mainly from a multiplicity of

sources, which included textbooks, annual reports, journals, magazines, newspapers, and
the Internet.

3.5 Target Population

It is important for the researcher to define the target population. The target population includes a
set of people or events or events to which researchers wish to generalize the results of their study
(Romano, 2004). In this research study, the target population included all FBC Securities clients.
Figures obtained from the organisation’s client database .

26
A population, according to Johnson (1980), is a collection or set of individuals, objects or
measurements whose properties are analyzed. Peil (1982:26) also described a population as “all
the cases or individuals that fit a certain specification.” The sampling frame as described by
Warwick and Lininger, (1975:76) is the “operational procedure and materials used to account for
the population in drawing a sample”. Peil (1982) described it as “a complete list of population
elements.

3.6 Sampling design

According to Mugo Frida (www.socialresearchmethods.net), “sampling is the act or process or

technique of selecting a suitable sample or a representative part of a population for the purpose
of determining parameters or characteristics of the whole population

3.7 Data collection

The researcher will use observation conduct telephone interviews to probe respondents and
concluded data collection by physically distributing the questionnaires and through email for
them to answer.

3.8 Data analysis procedures

Data analysis explains the meaning of the research. Data is collected in its raw state and must be
interpreted to give it meaning. The interpretation of data is called data analysis.

27
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