CHAPTER 2

LI
TERATURE REVIEW

2.1 Introduction
With reference to year 2022’s Index of economic freedom, Zimbabwe’s economic growth declined from 2017, through 2019
and also contracted in 2020, but 2021 saw an uptick which shrank further during the same half-decade. As noted by experts,
Zimbabwe as a country in 2022 experienced a rigorous decline in economic. The rule of law, regulatory efficiency, and open
markets continued to be technically viewed as currently weak, and the trade regime has worsened, and as result this
imposed negative impact on finance and investment. In the foregoing, this chapter will look at the following areas:
2.2 Explanation of the search strategy for the literature
2.3 Definition of the phenomenon
2.4 Underpinning theories
2.5 Importance of the subject
2.6 Discussion of existing models/frameworks and key concepts and areas where you can conduct research
2.7 Discussion of the key variables/dimensions
2.8 Literature synthesis and conceptual framework/model
Discussion of contradictions in the research area
Research propositions/hypotheses
Crystallization of research questions
Indications of research methodology
2.9 Chapter conclusion

2.2 Literature Search Strategy

A narrative literature review shall be in full use as it is a comprehensive, critical and objective analysis of the current
knowledge on a topic. Comprehensive, critical and objective analysis are an essential part of this research process, and
shall help to establish a theoretical framework for the research. This literature review will help to identify patterns and trends
in the Zimbabwean finance and investment literature so that it is possible to identify gaps or inconsistencies in a body of
knowledge. This should lead to a sufficiently focused research question that justifies the research.In the history of literature
review, Onwuegbuzie and Frels (pp 24-25, 2016), defined four common types of narrative reviews:
 General literature review that provides a review of the most important and critical aspects of the current
knowledge of the topic. This general literature review forms the introduction to a thesis or dissertation and must be
defined by the research objective, underlying hypothesis or problem or the reviewer's argumentative thesis.
 Theoretical literature review which examines how theory shapes or frames research.
 Methodological literature review where the research methods and design are described. These methodological
reviews outline the strengths and weaknesses of the methods used and provide future direction.
 Historical literature review which focus on examining research throughout a period of time, often starting with the
first time an issue, concept, theory, phenomena emerged in the literature, then tracing its evolution within the
scholarship of a discipline. The purpose is to place research in a historical context to show familiarity with state of
the art developments and to identify the likely directions for future research.
To be informative and fact finding this research shall focus on both general literature review and theoretical literature review.

2.3 Definition of the phenomenon

Volatility is the statistical measure of the propensity of a security or market to fall or rise sharply within a
shorter period, as highlighted by the Zimbabwe Standard Chartered Bank (2022). According to Investopedia
(2022), volatile markets are markets characterized by wide and rapid price fluctuations along with heavy
trading.Harry Markowitz defined the volatility of a portfolio as the standard deviation of the returns of the
portfolio whereas the risk of loss and the profit potential also increases with an increase in the volatility in the
market resulting in a remarkable increase in trading frequency and an equivalent decrease in the duration for
which the positions are occupied, and moreover, uncertain markets also tend to be hypersensitive, as reflected in
market prices. According to Economics Times of the India Times, volatility is a rate at which the price of a
security increases or decreases for a given set of returns. Claire Boyte White in her publications indicated that
volatility is the range of price change a security experiences over a given period of time, thus if the price stays
relatively stable the security has low volatility,whilst also a highly volatile security tend to hit new highs and
lows quickly, moves erratically, and has rapid increases and dramatic falls. Volatility is the degree of fluctuation
in returns, and volatility metrics are measures of dispersion of short-term returns, according to Michael J. Brien,
Constantijn W.A. Panis and Karthik Padmanabhan.However, from these definitions it is possible in these
research to model volatility as a function of market,business environment,investment and finance as following :

Volatility = f (market, investment, finance, business environment)

As volatility is the amount and frequency of price changes, according to Kimberly Amadoe, there are five types
which are:
 Price Volatility

Three factors that change price and work by alteration of supply and demand comprise, Weather, Seasonality
and Emotions.
Weather
In America agricultural prices depend on the supply, hence that depends on the weather being favourable to
bountiful crops. Extreme weather, such as hurricanes, can send gas prices soaring by destroying refineries and
pipelines.

 Seasonality
In developed countries it is well known that resort hotel room prices rise in the winter, when people want to get
away from the snow, but they drop in the summer, when vacationers are content to travel nearby. Thus volatility
in demand, and prices, caused by regular seasonal changes.

 Emotions
When traders worry in well developed economies, they aggravate the volatility of whatever they are buying.
This shows why the prices of commodities are so turbulent.

 Historical Volatility

How much volatility a stock has had over the past 12 months refers to Historical volatility. A state where stock
price is more volatile and riskier, thus if the stock price varied widely in the past year, hence becomes less
attractive than a less volatile stock. There is need to hold onto it for a long time before the price returns to where
one can sell it for a profit.

 Stock Volatility
By developing a measurement of stock volatility called beta investors in developed world suggested that the
measure indicates how well the stock price is correlated with the Standard and Poor’s 500 Index. the beta will be
1.0, If it moves perfectly along with the index. Being more volatile than the SandP 500 requires Stocks with
betas that are higher than 1.0, yet being not as volatile, thus stocks with a beta less than1.0. That unpredictability
is interpreted that stock a more risky investment which makes investors want a higher return for the increased
uncertainty.

 Implied Volatility

By determining how much volatility options traders think the stock will have in the future describes Implied
volatility .It is possible to tell what the implied volatility of a stock is by looking at how much the futures
options prices vary. all other things being equal, If the options prices start to rise that means implied volatility is
increasing,

 Market Volatility
The volatility is characterised by Bullish traders bidding up prices on a good news day, while bearish traders and
short-sellers driving prices down on bad news. Market volatility is defined as the velocity of price changes for
any market which includes commodities, forex, and the stock market. As there is a lot of uncertainty increased
volatility of the stock market is usually a sign that a market top or market bottom is at hand. Market volatility is
the velocity of price changes for any market, Kimberly Amadeo (2010). Volatile markets are defined in Free
dictionary as market with a great deal of price instability, and are highly risky and, they can result from an
imbalance of trade orders in one direction.In relation to the unusual nature of volatility being experienced in
Zimbabwe, Gift Mugano (2022) published that retrenchments and insolvency amongst firms, which include
banks, may result in economic collapse in Zimbabwe if disparities between the official exchange rate and black-
market rate pose serious risks of instability if not urgently addressed. It has been noted officially that annual
inflation exceeded 100% by June this year. In April 2022, inflation raced to 96,4% from 72% of the previous
month, putting the 35% target forecasted by the central bank governor John Mangudya completely out of line.
Widening disparities between the official exchange rate and parallel market rates and sustained inflationary
pressures to mid-2022 other researchers suggested that will result in the collapse of the auction system and end
in full dollarization. Richard Makoto (2020) in one of his economic journal published that Zimbabwe has chosen
to pursue a financial liberalization strategy in the form of imperfect financial integration following periods of
excessive domestic shocks. Nicol Mullins (2020) published that from time to time, certain events occurring in
the Zimbabwe economy just do not make sense, as applying rational thought and experience does not seem to
correspond with the events taking place and common sense, hence abnormal economic volatility. Zimbabwe
Herald business writer of May 2022, wrote that local business analyst suggested that Ministry of Finance and
Economic development, banks and RBZ are equally to blame for the volatility of Zimbabwe dollar exchange
rate which has stocked resurgent inflation rate.

2.3.1
Analysis of the interaction of market and volatility from previous different researches.
Number Market nature Details Volatility

1 Trending Market A trending market is said The overall character is

Tnevimbo Santu and
Wilfiord Mawanza
(2017),suggested that the
Zimbabwean financial service
sector has been largely
characterised by new and
changing market trends since
dollarization,thus trending
market.These trends have
largely manifested in the form
of entrance of new players in
the market, a growing
informal sector at the
expense of the formal
financial sector and the
emergence of new
technology paving way for
the need to develop and
market new financial service
products.
The trending market feature The chart is evaluated
is currently seen on
Zimbabwe Stock Exchange planned to trade.
where currently the Investors
are pessimistic on the
Zimbabwean market,
indicating that they anticipate
earnings will not grow as fast
to be characterized by trending, but there may be
sustained increases or small fluctuations (small
decreases in price and short lived
movement, and can be corrections) in price along
bullish or bearish. A the way. A market whose
bearish trending market is data indicates an upswing,
a market whose data or rise, in price is a bullish
indicates a down swing, or trending market. Buying
drop in price. Most into a bullish market is
investors recommend most investors
going short in a bearish recommend. To buy at the
market, with the optimum beginning of the market
timing being at the upswing (or up trend) is
beginning of the drop. The the optimum.
closer to the beginning of
the downtrend, the better
the potential for making
money.
What significantly impact
the character of the market
is the data interval used.
using the data interval
 as they have historically.The
earnings for Zimbabwean
listed companies have
remained mostly flat over the
last three years.

As more sales are being

generated, the level of
investment back into
businesses or the cost of
doing business has
increased leading to profits
have held steady.

2 Sideways Market Referred to as trendless is More preference to

a sideways market which monitor the market until
Zimbabwe Stock Exchange e moves with very little some sort of direction can
currently reveals sideway variation between the high be identified, but many
market, and also Zimbabwe and low price .Also known analysts advise against
is now ranked as the least as market that is trading buying or selling in this
predictable operating within a range. It is type of market. Identifying
environment in the world. The important to identify a a sideways market and
degree of predictability sideways market when it is beginning to
diminishes with the recurring make a significant move
policy goalpost shifting. either up or down we use
data analysis.
Foreign investors have been
seeking to exit Zimbabwe
(ZSE) more than they have
been willing to enter.

According to African Markets

(2022) in 2021, foreign
participation remained
sluggish with disposals
accounting for 19 percent of
the total turnover while
purchases claimed a mere 4
percent of the same as
foreigners continued to shy
away from the Zimbabwean
stock market due to delays in
movement of international
payments.

3 Volatile Market Significant but short-lived Generally short-term

movements, either up or trades are made by
Courage Masona down, in price volatility expansion
(2022),The government of characterized a volatile strategies. By being out of
Zimbabwe is grappling with market. By Providing the market a significant
the spiralling black market
exchange rate and the sky-
rocketing unofficial
exchange rate threatens to
reverse the gains that the
economy has achieved so
far.policy makers must
acknowledge that,
orthodox economic theory
no longer reflects realities
in today’s world
economies and Zimbabwe
is not an exception.in
Zimbabwe, an increase in
the supply of US dollars in
the market does not
necessarily translate to a
fall in the price of the
USD, as would be
anticipated in neoclassical
theory of demand and
supply. The existence of
parallel markets reduces
the flow of foreign
currency to the central
bank, hindering the
capacity of the country
concerned to import
through official channels
and to service its external
debt. Zimbabwe’s
experience is rare in
numerous respects. The
parallel premium the gap
between black market
exchange rate and the
official rate is so high in
Zimbabwe and unmatched
in the region.
quick and unexpected
changes in volatility
volatile markets often
seem to come out of
nowhere, this is referred to
as volatility expansion.
percentage of the time it is
possible to trade a
volatility expansion
strategy. A high
percentage of winning
trades in this type of
market is found, although
volatility expansion
strategies provide
relatively small profits per
trade. Gaps in volatility
expansion strategies are
also found. Gaps are
places where the price of
one bar is higher than the
high of the previous bar,
or lower than the low of
the previous bar (leaving a
gap between the two bars).
When the market is
making substantial and
unexpected moves in one
direction or another gaps
are often signified.

Wellington Garikai Bonga

(2019), investors on the
Zimbabwean stock
exchange tend to react
differently to information
depending be it positive or
negative in making
investment decisions.
Positive and negative
shocks have different
effects on the stock market
returns series. Bad and
good news will increase
volatility of stock market
returns in different
magnitude.
Figure: 1.1
Source: TradeStation.com

2.3.2. Finance

Finance is a broad term that is known to describe activities associated with banking, leverage or debt, credit,
capital markets, money, and investments in the Investopedia. Generally, it represents the process of acquiring
needed funds and money management and, also encompasses the oversight, creation, and study of money,
banking, credit, investments, assets, and liabilities that make up financial systems. According to Corporate
Finance Institute publications, finance is defined as the management of money, and includes activities such as
investing, borrowing, lending, budgeting, saving, and forecasting. However, there are three main types of
finance in well developed economies which are: (1) personal, (2) corporate, and (3) public or government.

An analysis of the interaction of finance and volatility from other different researches.
NUMBER FINANCE DETAIL VOLATILITY
TYPE
1 Personal  Lending money to people by With stock markets experiencing
providing them a mortgage to buy significant volatility and bond markets
a house with showing unpredictable movement
 Using Excel spreadsheets to build worldwide the year 2022 has presented
a budget and financial model for a challenges for investors. Periods of
corporation market volatility are often a true test of
 Saving personal money in a high- the ability to withstand temporary
interest savings account setbacks to portfolio.
 Developing a forecast for By scaling back the level of risk in
government spending and revenue your portfolio is needed to protect
collection against the impact of a major downturn
 Investing personal money in occurring at the wrong time just when
stocks, bonds, or guaranteed you need the money for retirement.
investment certificates (GICs) The maintaince of an appropriate
 Borrowing money from balance of stocks, bonds, and other
institutional investors by issuing types of investments is required, and
bonds on behalf of a public no concentrated position. As a rule of
company thumb, no individual holding should
represent more than 20% of asset mix.
The ongoing investment plans must not
be impacted by volatile markets.

2 Coporate
finance
Corporate finance is known as the sub field
of finance that deals with how corporations
address funding sources, capital structuring,
accounting, and investment decisions.
Corporate finance is also often concerned
with maximizing shareholder value through
long and short-term financial planning and
the implementation of various strategies.
Corporate finance activities are said to
range from capital investment to tax
considerations. Corporate finance tasks
include making capital investments and
deploying a company's long-term capital.
The capital investment decision process is
primarily concerned with capital
budgeting., a company identifies capital
expenditures, estimates future cash flows
from proposed capital projects, compares
planned investments with potential
proceeds, and decides which projects to
include in its capital budget, through capital
Volatility is said to be a measure of the
rate of fluctuations in the price of a
security over time. It indicates the level
of risk associated with the price
changes of a security. Investors and
traders are said to calculate the
volatility of a security to assess past
variations in the prices to predict their
future movements. Types of Volatility
known:
1.Historical Volatility
- It is used to predict the future
movements of prices based on previous
trends. However, it does not provide
insights regarding the future trend or
direction of the security’s price.
Measures the fluctuations in the
security’s prices in the past.
2. Implied Volatility
- refers to the volatility of the
 budgeting. underlying asset, which will return the
theoretical value of an option equal to
The most important corporate finance task the option’s current market price.
that can have serious business implications Implied volatility is a key parameter in
is making capital investments. Either option pricing. It provides a forward-
because of increased financing costs or looking aspect on possible future price
inadequate operating capacity, poor capital fluctuations.
budgeting can compromise a company's
financial position. Corporate finance is also
responsible for sourcing capital in the form
of debt or equity. A company may borrow
from commercial banks and other financial
intermediaries or may issue debt securities
in the capital markets through
investment .especially when it needs large
amounts of capital for business expansions
a company may also choose to sell stocks to
equity investors

In terms of deciding on the relative amounts

or weights between debt and equity Capital
financing is a balancing act. Relying
heavily on equity can dilute earnings,
Having too much debt may increase default
risk, and value for early investors. Capital
financing must provide the capital needed
to implement capital investments in the end.

Short-Term Liquidity
Where the goal is to ensure that there is
enough liquidity to carry out continuing
operations, Corporate finance is also tasked
with short-term financial management,
Short-term financial management concerns
working capital and operating cash flows or
current assets and current liabilities. When
due a company must be able to meet all its
current liability obligations, as this involves
having enough current liquid assets to avoid
disrupting a company's operations. Getting
additional credit lines or issuing
commercial papers as liquidity backups
makes Short-term financial management.
3 Government Public finance is the management of a Tax collection is the main revenue
country’s expenditures, revenue, and quasi- source for governments. Examples of
government institutions, and debt load taxes collected by governments
through various government CFI. A worldwide include sales tax, income
country’s financial position can be tax (a type of progressive tax), estate
evaluated in much the same way as a tax, and property tax. Other types of
business’ financial statements. The main revenue in this category include duties
components of public finance include and tariffs on imports and revenue
activities such as deficit/surplus, national from any type of public services that
debt, tax collection, budget, expenditures, are not free.
and managing public finance. The budget is a plan of what the
government intends to have as
expenditures in a fiscal year.
Expenditures are everything that a
government actually spends money on,
such as social programs, education,
and infrastructure. Much of the
 government’s spending is a form of
income or wealth redistribution, which
is aimed at benefiting society as a
whole. The actual expenditures may be
greater than or less than the budget.
If the government spends more then it
collects in revenue there is a deficit in
that year. If the government has less
expenditures than it collects in taxes,
there is a surplus.
If the government has a deficit
(spending is greater than revenue), it
will fund the difference by borrowing
money and issuing national debt. The
U.S. Treasury is responsible for issuing
debt, and when there is a deficit, the
Office of Debt Management (ODM)
will make the decision to sell
government securities to investors.

2.3.3 Investment

Investment is defined as the investing of money or capital in order to gain profitable returns, such as interest,
income, or appreciation in value, according to DICTIONARY.COM.In an economic view, an investment is the
purchase of goods that are not consumed today but are used in the future to generate wealth. An investment is an
asset accrued with the goal of generating income or recognition. In finance, an investment is a financial asset
bought with the idea that the asset will provide income further or will later be sold at a higher cost price for a
profit. These definitions are practicable to the Zimbabwean situation as well as in the world economy. What
differs is the measure of practicability that leaves a gap of more research in the Zimbabwean situation. Whereas,
Finance and investment means financial Investment, which is defined as an allocation of monetary resources to
assets that are expected to yield some gain or return over a given period of time, MBA Knowledge Base (2018).
In addition, it means an exchange of financial claims such as shares and bonds, real estate. Financial investment
involves contrasts written on pieces of paper such as shares and debentures. In a modern economy, much
investment is of the financial variety, whereas in primitive economies most investments are of the real variety.

2, 3.4. Business Environment

Definitions of Business Environment Author

1 The environment consists of factors that are large if not totally, external and beyond the – Barry
control of the individual industrial enterprise and their managements. These are essentially the M.
‘givers’ within which firms and their management must operate in a specific country and they Richman
vary, often greatly, from country to country. and
Melvgn
Copen
2 The business environment is the aggregate of all conditions, events, and influences that – Keith
surround and affect business. Davis
3 Business environment refers to the total of all things external to firms and industries which –
affect their organization and operation. Bayord
O.
Wheeler
4 The business environment encompasses the climate or set of conditions, economic, social, –
political, or institutional in which business operations are conducted. Arthtur
M.
Weimer
5 The environment includes factors outside the firm which can lead to opportunities for or – Glueck
threats to the firm. Although there are many factors, the most important of the sectors are and Jau
socio-economic, technological, supplier, competitors, and government.
According to United Kingdom government research, Zimbabwe business environment is faced with continued
cycles of economic and humanitarian challenges. Longer term prospects, and investment opportunities, remain
contingent on addressing deep underlying structural challenges. These challenges include prohibitive and
volatile foreign exchange controls, high inflation, fragile property rights, and pervasive corruption. Exchange
rate management by the Reserve Bank continues to leave a large gap between the official and parallel market
rates, increasing the risk of arbitrage. Occasional and localized instances of land invasions continue to damage
the credibility of property rights in Zimbabwe. Zimbabwe’s global competitiveness has been declining since
2015 and is below the sub-Saharan African average. Zimbabwe ranks 124th (out of 137) in the Global
Competitiveness Index (GCI).Electricity shortages are common, although this situation has improved since the
frequent outages of 2019.Zimbabwe has a poor record on human rights. Continued abuses have resulted in the
placement of targeted sanctions (travel bans and asset freezes) on four security chiefs on 1 Feb to reflect their
role in the most egregious human rights violations (death of 6 protestors in Aug 2018 and 17 protestors in Jan
2019).Corruption in Zimbabwe is widespread. Politically connected individuals are often awarded large state
contracts, or allocated state-controlled resources, such as foreign currency.Under the UK’s Global Anti-
Corruption sanctions regime, Zimbabwean Kudakwashe Regimond Tagwirei was sanctioned (asset freeze and
travel ban) in 2021 for profiting from misappropriation of property when his company, Sakunda Holdings,
redeemed Government of Zimbabwe Treasury Bills at up to ten times their official value. His actions
accelerated the devaluation of Zimbabwe’s currency, increasing the price of essentials, such as food, for
Zimbabwean citizens. For many of the reasons listed above, doing business in Zimbabwe can be challenging,
with a number of obstacles and pitfalls. The high and volatile inflation also makes the business environment
more uncertain: many businesses price in US dollars but as discussed above the supply of foreign currency is
erratic.

Nicol Mullins (2020), highlighted that Zimbabwean economy is definitely divided between a formal and an
informal sector. The informal sector, some might say, represents as much as 70% of the current market
structure. Large chunks of the country’s economy run through electronic systems and mobile money, which is
dominated by Econet’s Ecocash with a 95% market share. Goods and services are available, but the cost is
exorbitant, with multiple rates existing: Interbank rate, official rate, and market rate. In the informal sector,
buyers may pay rates as high as 30 Zimbabwean Dollars for goods, whereas it might cost 1 United States
Dollars (USD). The exchange rate was pegged initially early March 2019 at 1:1 but has since depreciated
significantly. It seems that people are suppressed, and a form of presenteeism can be observed, which is
understandable, driven by the economic situation in Zimbabwe and the reality of not being able to meet basic
needs. It is a tight market to drive employee engagement with so much else going on. The cost of living is too
high (food, transport etc. vs the salaries people are getting, at the same time high inflation rates erodes the
purchasing power of salaries. Some employees might even take the view that they are subsidizing their
employees because their salaries are not enough to cover just the transport costs to and from work in a month.
Savings and investments – with inflation skyrocketing people cannot save fearing that inflation will erode their
savings. Investments – the country cannot attract foreign direct investment (FDI) because of the instability on
currency, property right etc. there is an overall lack of market confidence. There is too much interference by the
Government on the Reserve Bank, calling into question its independence. A question may be asked, as in many
other countries across the world if politicians have too much control and power. Public healthcare has basically
collapsed there is an overall lack of medical equipment; for example, things like gloves are not found in a public
hospital. Lengthy strikes were drawn to an end thanks to bailing out by Strive Masiyiwa– each Dr. received a
small amount monthly from his foundation. Education – An area that has been maintained, not without
commentary being provided. ZIMSEC, which is the local examination council, has been criticized for setting the
standard so low, that many people are just passing through the system without a rigorous process. Demography –
like any other African country, they have a large young population – which is not working. Yes, they go to
universities there are no jobs afterward. This may lead to civil unrest, should the young job seekers not find
productive avenues to soak up their vibrant energy. Connectedness – besides having a lot of people outside of
Zimbabwe looking for greener pastures, there is not much connectedness between Zimbabwe and other
countries. Sanctions – means they cannot trade with other countries. It will take some time for the economy to
stabilise and possibly reach an acceptable functional state. It is anticipated that this could take years to stabilise
the economy. There is a framework that is often used in analysing a specific market, which is referred to as the
PESTLE framework, political, economic, social, technological legal, and the environment for a political stance.
However, these researchers had vision on the current state of Zimbabwe which open a gap of more research
within the finance and investment system of the country.

2.3.3.1 Business environment and volatility

With reference to Meeta Dasgupta, a volatile business environment requires organizations to constantly adjust to changes,
and be dynamic with respect to the value they create for their customers, and capturing of that value. Most leading
management thinkers agree that in an increasingly volatile business environment static, reactionary strategy formulation is
impossible. Organizations should be in a position to continuously revise their business models and be agile to ensure that
their strategies are workable in a constantly changing competitive environment. (Amit & Zott, 2012; Bereznoi, 2014; Hassell,
2016; Singh, 2017). It requires organizations to operate in a smart, optimized manner adjusting constantly to today’s
realities. (Sehgal & Surayya, 2011), Rapid advancement in technology, increasing cut-throat competition from rivals,
unreasonable government policies, workforce group dynamics, threat from well-established militant unions, increase in the
number of consumer forums, and market fluctuations have led to volatile business environments, and have forced
organizations to become alert and vigilant.High volatile and velocity environments are wherein processes are unpredictable,
uncontrollable, inefficient, continuous and diverse, points to the advantages of semicoherent strategic decision-making
(Eisenhardt, 1989; Grant, 2003). According to (Sharma and Vredenburg, 1998), in unusual or highly volatile market
environment, managerial capabilities are important both for efficient management of resources, and to act proactively to
changes in the environment.

2.3.3.2. There are three types of business environment which are micro, market and Macro as known by experts.

Size of control Business environment Volatility

No control Macro Businesses have no control over all the
features/elements/components of the
Zimbabwe economy remains highly macro
controlled by the government and it Environment. E.g. A business cannot
is a mixed economy in which there is control
limited private freedom.Zimbabwe is the increase in the price of petrol
a member of the Common Market for announced
Eastern and Southern Africa by the Central Energy Fund but can
(COMESA) and the Southern African outsource
Development Community (SADC), the transport function to reduce delivery
according to Global insights of
(2022).Zimbabwe also has bilateral costs.
trade agreements with South Africa,
Botswana, Namibia, Malawi,
Mozambique and Zambia. Zimbabwe
is a member of the World Trade
Organization. It further belongs to
the 22-nation Preferential Trade
Area (PTA) of Eastern and Southern
Africa, which provides for reduced
duties on imports from member
countries subject to certain rules of
origin. Zimbabwe is also a member
of a number of other regional trade
agreements, which provide
frameworks for the further
liberalization of trade. Officially the
country joined the African
Continental Free Trade Area
(AfCFTA), which aims to create a
single continental market for goods
and services, and eventually
envisages the establishment of a
customs union.
Export.gov(2022), stated that
although Zimbabwe improved its
rank in the World Bank’s “Doing
Business” survey for 2018 to 155 out
of 190, it still ranks poorly in global
comparisons of economic
competitiveness.In
addition,Zimbabwe’s desire to re-
engage the international community
by paying off arrears to the preferred
creditors failed.After the country paid
off arrears owed to the IMF, it failed
to raise resources to pay arrears
owed to the African Development
Bank and the World Bank as agreed
to in Lima on the sidelines of the
World Bank and IMF spring meetings
in 2015.The IMF has agreed to
put the country onto a staff
monitored program.

The Ministry of Finance and

Economic Development through its
treasury departments-Design
investment incentives to attract
domestic and foreign direct
investment and make Zimbabwe an
attractive destination
 Co-ordinate investment
programmes in all
sectors of the economy
in accordance with the
country’s macro-
economic framework
and promote Private
Public Sector and

 Design and co-ordinate the

formulation and
implementation of
economic policies to attract
investment and

 Analyse data/information
on national and global
investment trends and
advise all the sectors of
the economy

 Conduct studies and

research aimed at creating
a macro-economic
environment conducive to
investment and prepare
regular analytic reports on
the country’s investment
status.

The reserve bank of Zimbabwean

The Bank is responsible for the

formulation and implementation of
monetary policy, directed at ensuring
low and stable inflation levels. A
further core function of the Bank is to
 maintain a stable banking system
through its supervisory and lender of
last resort functions. Other
secondary roles of the Bank include
the management of the country's
gold and foreign exchange assets.
The bank is the sole issuer of
currency and acts as banker and
advisor to Government.

Generally the state of the macro

environment affects business
decisions on things such as
spending, borrowing, and investing.
The macro-environment can be
affected by GDP, fiscal policy,
monetary policy, inflation,
employment rates, and consumer
spending.
Wiith refrence to IMF 2022
report,Zimbabwe experienced
severe exogenous shocks (cyclone
Idai, protracted drought, and the
Covid-19 pandemic) during 2019-20,
which along with policy missteps in
2019, led to a deep recession and
high inflation.As a result, real GDP
[Gross Domestic Product, the total
value of all goods and services
produced within the country]
contracted cumulatively by 11,7 per
cent during 2019-20 and inflation
reached 837 per cent (year on year)
by July 2020.The report notes that
GDP rose by 6,3 per cent in 2021
buoyed by a bumper harvest,
increased mining output and a
buoyant construction industry. By the
end of 2021 inflation had fallen to
60,7 per cent year on year. Fiscal
policy was tightened in 2020-2021
and the current account balance
turned into a surplus.The report also
noted however that high double-digit
inflation persisted and there were
parallel foreign currency markets
with widely different exchange rates.
Poverty levels rose and about a third
of the population was at risk of food
insecurity.

Full control Micro Businesses have full control over all the
Nhavira, John D. G.; Mudzonga, Features/elements/components of the
Evengelista ; Mugocha, Everisto micro environment. E.g. A business
(2014), highlighted that in Zimbabwe determines its own mission,
there are five principal agencies organisational structure and
charged with the responsibility of resources.
financial regulation and supervision.
These are the Reserve Bank of
 Zimbabwe (RBZ), The Ministry of
Finance, The Deposit Protection
Corporation, The Securities
Exchange Commission (SEC) and
The Insurance and Pensions
Commission. Regulation is
necessary to ensure consumer’s
confidence in the financial industry.
There are three main reasons for
financial system regulation: (i) to
ensure system stability i.e. the safety
and soundness of the financial
system; (ii) to provide smaller
(individuals), retail clients with
protection.
According to the IMF, Zimbabwe is
classified in group of debt distress.
In recent years Domestic debt has
grown due to large fiscal deficits,
quasi-fiscal activities by the Reserve
Bank of Zimbabwe (RBZ), which
include the accumulation of
parastatal debt, a large public wage
bill and negligible access to external
finance. Zimbabwe is experiencing
turbulent years in terms of its
monetary policies, with continued
instability, significant currency
changes and skyrocketing inflation.
Currently, the Demand for cash is
exceeding supply, leading to a
continuing increase in the parallel
market premium for the dollar, which
undermined the viability of the
financial and foreign exchange
regime.Zimbabwe’s economy is
reported wordwide to remains
unstable because of extreme
government interference and
mismanagement, Extreme poverty
levels is reported to have reached
40% of the population in 2019, up
from 30% in 2017, with urban
poverty increasing more (from 4% to
10%) than rural poverty. And the
trend is still worsening in recent
years. Much reference is made from
the published 2022 country report.
Little/limited control Market Businesses have little control over all the
According to Country Commercial features/elements/components of the
Guides (2022) , as companies market
regularly praise Zimbabwe’s environment. E.g. A business cannot
bountiful natural resources and force its
human capital, macroeconomic suppliers to reduce the prices of their
instability, its weak investment goods
climate, poor human rights record, but it can buy goods in bulks and claim
and government restrictions on discounts.
democratic space have prevented
Zimbabwe from living up to its
tremendous economic potential.
Victor Bhoroma (May
2022),surge in inflation has piled
more pressure on the shaky
formal business climate in
Zimbabwe and the continuous
depreciation of the local
currency.It has been evidenced
that annual inflation has
increased from 60,6% in January
to 96,4% in April 2022. Month-
on-Month (MoM) inflation has
advanced from 5,3% to 15,5% in
the same period, reflecting the
rate at which consumer buying
power and earnings are being
eroded in the economy.Formal
business players are facing a
plethora of operational
constraints of a policy nature
from the impact of foreign
currency shortages and foreign
exchange losses, low export
retention levels, high levels of
taxation, low consumer
confidence and a complex
regulatory environment where
licences and permits must be
renewed frequently to various
government agencies.Zimbabwe
is regularlly facing acute foreign
exchange shortages in the formal
market due to the manipulation
of the auction system by the
central bank.The lack of a
market-driven formal exchange
rate has chased away
independent holders of foreign
currency and created artificial
shortages in the economy.In
accordance,currently there is
over US$2,4 billion that is
parked in foreign currency
accounts and billions in diaspora
remittances (US$1,4 billion in
2021) or informal sector sales
(estimated to be 60% of GDP)
that bypasses the formal
economy,resulting in a limited
formal and legal channels in the
market to source foreign
currency.The central bank
regularly threatens businesses
with arrests for indexing prices
above their preferred rate, which
is below the pegged prevailing
rate on the auction platform.
 Also, the apex bank tracks
business transactions, which
point to foreign currency trading
and penalises businesses for
it.The current export retention
scheme allows exporters to retain
60% of the export proceeds and
surrender 40% to the central
bank.

On local foreign currency sales,

treasury retains 20% of all sales
deposited in local banks.

Ordinarily, these measures would

not be a challenge if the
conversion rate was market
determined.

2.4. An analysis of the interaction of volatile market and finance

Financial market volatility simply refers to changes in asset prices over time, and is partly due to uncertainty.
The greater the economic and financial uncertainty, the greater the financial market volatility, Professor Stephen
Brincks 2020. Usually measured by the standard deviation of logarithmic returns, in finance, volatility (usually
denoted by σ) is the degree of variation of a trading price series over time. In finance, there are types of
volatility, according to Finance Wikipedia:
 actual current volatility of a financial instrument for a specified period (for example 30 days or 90
days), based on historical prices over the specified period with the last observation the most recent
price.
 actual historical volatility which refers to the volatility of a financial instrument over a specified period
but with the last observation on a date in the past.
 actual future volatility which refers to the volatility of a financial instrument over a specified period
starting at the current time and ending at a future date (normally the expiry date of an option).Under
implied volatility, we have:

 Historical implied volatility which refers to the implied volatility observed from historical prices of the
financial instrument (normally options)
 Current implied volatility which refers to the implied volatility observed from current prices of the
financial instrument
 Future implied volatility which refers to the implied volatility observed from future prices of the
financial instrument.

According to Francisco G.Carneiroha Minh Nguyenrei Odawaira 2016:

• Excessive leverage and risk-taking can feed economic and financial volatility, with negative
consequences for long-term growth, especially if regulation and supervision are inadequate.
• Too much access to finance may increase the frequency of booms and busts, thus increasing volatility
and driving down economic growth.
• Excessive finance can divert talent and human capital away from productive sectors and toward the
financial sector without a clear positive impact on growth.
According to Richard Makoto Zimbabwe financial market integration has a negative effect on output volatility
while insignificant on consumption volatility, also the country should gradually liberalize the capital account
and properly sequence financial development reforms in order to minimize losses from global financial
integration. From the research conducted by Bonga Wellington Garikai(2014),the Zimbabwean Industrial Stock
market has proved that there is a strong relationship between volatility and market performance, thus volatility
tends to decline as the stock market rises and increase as the stock market falls ,and also when volatility
increases, risk increases and returns decrease. The Mining Stock market has shown to be less volatile as given
by the GARCH Model regression and the presence of ARCH effects. This implies that investment in the market
should be encouraged as it seems to be decreasing in performance over time. In reality the sector comprises of
very few mining companies, and during the last decade many mining companies have been facing difficulties in
operation.
Upenyu Sakarombe and Rudo Makoni-Marimbe (2020) highlighted through their research that Zimbabwe has
been experiencing a fast-growing fluctuating parallel market for the exchange of the United States Dollar (USD)
against Real Time Gross Settlement (RTGS) balances, bond notes, and mobile money during both the formal
fixed exchange rate period and the free market exchange rate period. Ideally, the surfacing of a significant
parallel market is enough evidence of market failure on the formal side. The authorities to strengthen the local
exchange market to maintain competitive bullish activities in line with alternative markets where shares are
fungible to maintain a balanced flow of portfolios which will not adversely affect the exchange rate.
Finance Minister Mthuli Ncube said on the February 25, 2019, Zimbabwe’s central bank will buy or sell dollars
to manage volatility in the RTGS currency, revealing uniqueness if not abnormality.

2.4.1. The link between volatile market and investment

Economists normally use the term investment to describe the purchase of goods for households businesses, and
governments. In general, investment may connote many types of economic activity. Private investment is
commonly divided into three broad categories:
 residential investment, which accounts for about a quarter of all private investment (25.7 percent in
1990)
 non-residential, or business, fixed investment, which accounts for most of the remainder
 , and inventory investment, which is small but volatile.
Investment is a volatile component of Gross National Product, falling sharply during recessions and rising just
as sharply during booms. As the economy went into a deep recession in the early eighties.

2.5 .An analysis of Investments on the world market in relation to Zimbabwe

Number Investment type Details
1 Stock Investment in stock, involves buying The performance of an individual
Zimbabwe as a country
recognize stock trading and
as a result there is
Zimbabwe Stock Market
exchange which currently
provides a listing and trading
platform for equity
securities, debt securities,
depository receipts and
Exchange Traded Funds.
MARKET confidence in
Zimbabwe’s capital markets
has dimmed, triggering
exodus of investor from the
country’s main bourse to
property and private
equities, a new report
indicated Monday, blaming
‘aggressive policy missteps’
for the walk outs.
Ray Ndlovu (2022) stocks
have long been favoured by
local investors seeking a
refuge from the sliding
domestic currency and
consumer prices that rose
257% last month from a
Reaction to volatility
ownership shares in a company also
known as equity shares. Depending
on the success or failure of that
company the return on investment, is
what is get back in relation to what is
put in. One expect to benefit from
that success If the company does well
and makes money from the products
or services it sells. There are two
main ways to make money with
stocks:
One can either take the dividends in
cash or reinvest them to purchase
more shares in the company.
Dividends is when publicly owned
companies are profitable, they can
choose to distribute some of those
earnings to shareholders by paying a
dividend.to replace income they no
longer receive from their jobs many
retired investors focus on stocks that
generate regular dividend income.
Stocks are bought and sold
constantly throughout each trading
day. Stocks that pay a higher than
average dividend are sometimes
referred to as income stocks.
Capital gains. And their prices change
stock is also affected by what's
happening in the stock market in
general, which is in turn affected
by the economy as a whole.
Volatility is the rate at which the
price of a stock increases or
decreases over a particular period.
Volatility is the standard deviation
of a stock’s annualised returns
over a given period and shows the
range in which its price may
increase or decrease. If the price
of a stock fluctuates rapidly in a
short period, hitting new highs and
lows, it is said to have high
volatility. If the stock price moves
higher or lower more slowly, or
stays relatively stable, it is said to
have low volatility. Historic volatility
is calculated using a series of past
market prices, while implied
volatility looks at expected future
volatility, using the market price of
a market-traded derivative like an
option.
Drivers of stock price volatility are:
 Political and economic
 year earlier year 2022. But
the benchmark index of the
Zimbabwe Stock Exchange
is in a record losing streak
that has stretched.
2 Bond
Zimbabwe Stock Exchange
traded bonds in the form of
portifo investment.
With the adoption of
dollarization, the Reserve
Bank of Zimbabwe’s (RBZ)
control over monetary policy
was curtailed. The multi-
currency system, which the
authorities have decided to
maintain until 2012,
provided the very foundation
of Zimbabwe’s Monetary
Policy. Given the fiscal
constraints that come with
dollarization, the threat of
hyperinflation that has
plagued the country is
eliminated. The focus has
turned away from controlling
inflation to attracting private
and public capital to
Zimbabwe. The introduction
of local currency backed
monetary auction system
have brought reverse of
everything strides made.
According to chief executive
officer, Justin
Bgoni(2022),the Zimbabwe
Stock Exchange (ZSE) has
not witnessed any foreign
investor inflows for the past
seven years. Foreign direct
all the time. When a stock price goes
higher than what one paid to buy it,
they can sell shares at a profit. These
profits are known as capital gains. In
contrast, if they sell stock for a lower
price than paid to buy it, incurred are
capital loss.
There are a wide variety of bonds
including Treasuries, agency bonds,
corporate bonds, municipal bonds
and more. A bond is a loan an
investor makes to a corporation,
government, federal agency or other
organization in exchange for interest
payments over a specified term plus
repayment of principal at the bond’s
maturity date. Likewise, there are
many types of bond mutual funds.
Bonds and bond mutual funds often
can be an important component of a
diversified investment portfolio
factors
 Industry and sector
factors
 Company performance
Downward market volatility offers
investors who believe markets will
perform well in the long run to buy
additional stocks in companies that
they like at lower prices.
The process is the same when a
stock rises quickly. Investors can
take advantage of this by selling
out, the proceeds of which can be
invested in other areas that
represent greater opportunity.
Investing when markets are
volatile, and valuations are more
attractive, can give investors the
potential to generate strong, long-
term returns.
When interest rates rise
it is said that bond prices
generally fall.
When interest rates fall—
bond prices generally
rise.
Every bond carries
interest rate risk.
As bond price increases
its yield decreases and
as bond price decreases
its yield increases
When people invest in bonds and
bond mutual funds, people face the
risk that investment might lose
money, especially if they bought an
individual bond and want or need
to sell it before it matures. And
bond mutual fund prices can
fluctuate, just as stock mutual
funds do. Risk will also vary
depending on the type of bond you
own.
 investment as stopped
because People are worried
that they will not be able to
get their money back as
exchange rates prohibit
investors to be able to
repatriate their dividends
when they sell.
market analysts concurred
that the economic outlook
has not been good for
foreign investors to stay put
as they were worried about
the capacity of companies to
generate earnings in the
right currency.
3 Mutual Funds
in Zimbabwe, unit trusts or
mutual funds are collective
investment schemes which
involve the pooling of funds
on behalf of a large number
of investors, with each
investor buying a certain
number of units in the total
fund at the unit price ruling
at the time of investment,
representing their
proportional investment. The
capital pool is invested in
carefully selected shares
listed on the Zimbabwe
Stock Exchange as well as
money market instruments.
A mutual fund is an investment
company that pools money from
many investors and invests it based
on specific investment goals.Mutual
funds are a popular way to invest in
securities. The mutual fund raises
money by selling its own shares to
investors.Each share represents an
ownership slice of the fund and gives
the investor a proportional right,
based on the number of shares he or
she owns, to income and capital
gains that the fund generates from its
investments. The money is used to
purchase a portfolio of stocks, bonds,
short-term money-market
instruments, other securities or
assets, or some combination of these
investments. When you buy shares
of a fund you become a part owner of
the fund. The holdings of the mutual
fund are known as its underlying
investments, and the performance of
those investments, minus fund fees,
determine the fund's investment
return. Mutual funds are equity
investments, as individual stocks are.
If one own shares in a mutual fund
you share in its profits. Also, when the
fund has capital gains from selling
investments in its portfolio at a profit,
it passes on those after-expense
profits to shareholders as capital
gains distributions. Open-End and
Closed-End Funds are two types of
mutual funds.
A mutual fund, or open-end fund is
the one that investors can buy and
sell shares at any time. Funds create
new shares to meet demand for
increased sales and buy back shares
from investors who want to sell.
Sometimes, open-end funds get so
large that they are closed to new
like investing in any security,
investing in a mutual fund involves
certain risks, including the
possibility that people may lose
money .As mutual fund prices tend
to change daily, the greater its
volatility, or risk, the greater the
price fluctuations of a fund.
Commonly used volatility metrics
are relative metrics involve a
comparison to the volatility of an
asset class or a market index.
Absolute metrics may be
calculated directly from daily prices
or returns of an asset. Absolute
risk metrics are directly based on
daily (or other short-term) price
changes of the fund or asset.
Some are quite intuitive. Relative
Volatility Metrics- the second set
of metrics measure an asset’s
volatility relative to that of an asset
class or index.
Individuals involved in mutual fund
have to pay taxes on the fund's
income distributions, and usually
on its capital gains, if the fund is
owned in a taxable account.
Individuals may also owe capital
gains taxes if the fund sells some
investments for more than it paid to
buy them, even if the overall return
on the fund is down for the year or
if one became an investor of the
fund after the fund bought those
investments in question. When
invest in a mutual fund one may
have short-term capital gains,
which are taxed at the same rate
as ordinary income. However, if
one own the mutual fund in a tax-
deferred or tax-free account, such
as an individual retirement
account, no tax is due on any of

4 Exchange Traded Funds
According to The Zimbabwe
Stock Exchange (ZSE),
currently the investment is
not available but it will be
introduced as Exchange
Traded Funds (ETFs) as
part of efforts by the
domestic bourse to offer
wide investment choices.as
it is in line with the vision of
ZSE chief executive Justin
Bgoni.
An ETF contains an
assortment of stocks; a
basket tracking an index.
These could be indexes
made up of related stocks
such as mining, agriculture,
technology among others.
investors. Even if an open-end fund is
closed, however, it still remains an
open-end fund since existing
shareholders can continue to buy and
sell fund shares. NAV is not
necessarily a measure of a fund's
success, as stock prices are,
however. Since open-end funds can
issue new shares and buy back old
ones all the time, the number of
shares and the dollars invested in the
fund are constantly changing.
Closed-end funds differ from open-
end funds because they raise money
only once in a single offering, much
the way a stock issue raises money
for the company only once, at its
initial public offering, or IPO. After the
shares are sold, the closed-end fund
uses the money to buy a portfolio of
underlying investments, and any
further growth in the size of the fund
depends on the return on its
investments, not new investment
dollars. The fund is then listed on an
exchange, the way an individual stock
is, and shares trade throughout the
day. You buy or sell shares of a
closed-end fund by placing the order
with your stockbroker. The price for
closed-end funds rises and falls in
response to investor demand, and
may be higher or lower than its NAV,
or the actual per-share value of the
fund's underlying investments.
Combines aspects of mutual funds
and conventional stocks. Like a
mutual fund, an ETF is a pooled
investment fund that offers an
investor an interest in a professionally
managed, diversified portfolio of
investments. But unlike mutual funds,
ETF shares trade like stocks on stock
exchanges and can be bought or sold
throughout the trading day at
fluctuating prices. Can be a great
investment vehicle for small and large
investors alike. These popular funds,
which are similar to mutual funds but
trade like stocks, have become a
popular choice among investors
looking to broaden the diversity of
their portfolios without increasing the
time and effort they have to spend
managing and allocating their
investments. ETFs can vary in a
these distributions when one
receive them. But one will owe tax
at regular rate on all withdrawals
from a tax-deferred account.
Money is made from the fund
shares by selling them back to the
fund, or redeeming them, if the
underlying investments in the fund
have increased in value since the
time shares are purchased in the
funds.
Taxes are due the year of realize
of gains in a taxable account, but
not in a tax-deferred or tax-free
account.
Capital gains for mutual funds are
calculated somewhat differently
than gains for individual
investments, and the fund will each
year reveal taxable share of the
fund's gains.
In addition to any brokerage
commission one may pay,ETF
Expenses. ETFs have expense
ratios, like mutual funds, calculated
as a percentage of the assets one
have invested. . ETFs and
Taxes,-one can own ETFs in
taxable, tax-deferred or tax-free
accounts. In taxable accounts, any
capital gains realized from selling
fund shares are taxed in the year
realized them, though the rate that
applies may be long-term capital
gains rate. Every time one buy or
sell ETFs they pay a commission.
Depending on how often they trade
an ETF, trading fees can quickly
add up and reduce the
investment’s performance. The
specifics of ETF trading fees
depend largely on the funds
number of ways: Regulatory
structure, Management style,
Investment objective,
Indices tracked.
Investors purchasing or
selling shares in an ETF typically pay
a brokerage commission on each
transaction. When you purchase or
sell ETF shares, you receive the
market price on the exchange at the
time the order is placed. This price
may fluctuate throughout the trading
day. The intraday pricing of ETFs
tends to provide investors with
greater trading flexibility, because you
can monitor how the price is doing
and do not have to wait until the end
of the day to know your purchase or
sale price.
themselves, as well as the An ETF
that tracks a broad market index
such as the S&P 500 is likely to be
less volatile than an ETF that
tracks a specific industry or sector,
such as an oil services ETF. fund
providers
The potential for large swings will
mainly depend on the scope of the
fund. Therefore, it is vital to be
aware of the fund’s focus and what
types of investments it includes. In
the case of international or global
ETFs, the fundamentals of the
country that the ETF is following
are important, as is the
creditworthiness of the currency in
that country. Economic and social
instability will also play a huge role
in determining the success of any
ETF that invests in a particular
country or region. If an ETF is
thinly traded, there can be
problems getting out of the
investment, depending on the size
of your position relative to the
average trading volume. The
biggest sign of an illiquid
investment is large spreads
between the bid and the ask.
People need to make sure an ETF
is liquid before buying it, and the
best way to do this is to study the
spreads and the market
movements over a week or month.
The rule here is to make sure that
the ETF in which one are
interested does not have large
spreads between the bid and ask
prices.
In some cases, an ETF will
distribute capital gains to
shareholders. This is not always
desirable for ETF holders, as
shareholders are responsible for
paying the capital gains tax. It is
usually better if the fund retains the
capital gains and invests them,
rather than distributing them and
creating a tax liability for the
investor. Lump-sum investing
means that oneu can put entire
investment to work right away,
which is great in a rising market,
but perhaps not optimal if the
market looks like it is peaking or is
unusually volatile. With dollar-cost
averaging, you spread the $5,000
or $10,000 across equal monthly
investments. This strategy works

5 Bank Products
In an environment
characterised by interest
rates lagging behind inflation
rates leading to negative
real interest rates, operating
expense will likely become
an ever-greater area of
focus. Banks in Zimbabwe
will need to find a way of
decreasing costs while also
building capability to support
growth in its bank products,
Banks and credit unions can provide
a safe and convenient way to
accumulate savings—and some
banks offer services that can help you
manage your money. Deposits at
banks and most credit unions are
federally insured up to a limit set by
Congress. And transaction (or
checking) accounts and deposit
accounts offer liquidity, making it easy
for you to get to your funds for any
reason—from day-to-day expenses to
a down payment or money for
well if the market declines or is
choppy, but it does have an
opportunity cost if the market rises
when only part of your money has
been invested. And even small
commissions can add up over
multiple buy orders, unless
brokerage does not charge
commissions. Leveraged ETFs are
a good example. These ETFs tend
to experience value decay as time
goes on and due to daily resets.
This can happen even as an
underlying index is thriving. Many
analysts caution investors against
buying leveraged ETFs at all.
Investors who do take this
approach should watch their
investments carefully and be
mindful of the risks. An investor
who buys shares in a pool of
different individual stocks has more
flexibility than one who buys the
same group of stocks in an ETF.
One way that this disadvantages
the ETF investor is in their ability to
control tax-loss harvesting. If the
price of a stock goes down, an
investor can sell shares at a loss,
thereby reducing total capital gains
and taxable income to a certain
extent. Those investors holding the
same stock through an ETF donot
have the same luxury—the ETF
determines when to adjust its
portfolio, and the investor has to
buy or sell an entire lot of stocks,
rather than individual names. ETFs
are most often linked to a
benchmarking index, meaning that
they are often designed to not
outperform that index. Investors
looking for this type of
outperformance (which also, of
course, carries added risks) should
perhaps look to other
opportunities.
The interest earned from bank
products—including certificates of
deposit (CDs)—tends to be lower
than potential returns from other
investments. Types of Accounts
are;
Savings Accounts, Money Market
Accounts, Certificates of Deposit
(CDs)
Federal Insurance, Savings
Accounts. Savings Accounts But
they often pay the lowest interest
rates of any of the savings
according to Mr. Craig unexpected emergencies. In addition
Adamson (KPMG 2022). to being insured by the FDIC,
checking accounts let you transfer
money by check or electronic
payment to a person or organization
that you designate as payee.
alternatives. However, when banks
are competing for your deposits,
they may offer substantially higher
interest or other benefits for
opening a savings account. Most
savings accounts pay compound
interest, which means that
earnings are added to the balance
to create a larger base on which
future interest is paid. The bank
will advise whether the interest
compounds daily, monthly, or on
some other schedule, and when
the interest is credited to account.
The more frequently it compounds,
the faster earnings will accumulate.
Online banks may offer higher
interest rates than more traditional
brick-and-mortar banks. That's
because online banks tend to have
lower overhead, and can pass their
reduced costs onto consumers in
the form of increased earnings
rates. Before deciding on a savings
account, it pays to compare
interest rates, along with other
features, such as convenience of
making deposits and withdrawals.
Certificates of deposit (CDs) are
time deposits. When you choose a
CD, the bank accepts deposit for a
fixed term—usually a preset period
from six months to five years—and
pays interest until maturity. At the
end of the term you can cash in
your CD for the principal plus the
interest you've earned, or roll your
account balance over to a new CD.
But one must tell the bank what
they have decided before the CD
matures. Otherwise the bank may
automatically roll over CD to a new
CD with the same term at the
current interest rate. And they
might earn a better interest rate
with a CD that has a different term,
or one offered by a different bank.
CDs are less liquid than savings
accounts. In the past, each CD
paid a fixed rate of interest over its
term. But today one can also find
variable rate CDs, sometimes
called market rate CDs. With these
accounts, the interest rate may rise
and fall with changing market rates
or be readjusted on a specific
schedule. If the current rate is low,
it may make sense to purchase a
variable CD. That way, if interest

6 Options
The financial Securities
Exchange (FINSEC) in
Zimbabwe, launched the
first ever derivatives trading
platform on June 2022.This
enabled trading by retail
investors of index futures,
Stocks futures and stock
options listed on the
FINSEC DERIVASTIVES
markets.
To buy or sell the underlying asset at
a mutually agreeable price on or
before a specified future date,
Options are derivative contracts that
give the buyer the right, but not the
obligation. Option is based on the
likelihood that the underlying asset
will finish in-the-money (ITM) or with
some intrinsic value, trading these
instruments can be very beneficial for
traders.
rates rise, one would not miss out
on the rate increase. On the other
hand, if you expect rates to fall in
the future, it may make more
sense to buy a fixed-rate CD to
lock in the higher rate for a specific
term
Options provide protection for an
investor's portfolio during times of
market volatility. Volatility is also
positively correlated with an
option's price since the greater the
price movements of a stock or
other asset, the more chances
those large moves will produce an
in-the-money option. Because of
this, volatility plays a key role in
pricing options. At the same time,
market participants can look to an
option's price in the market and
back out the implied volatility that
traders expect the underlying to
move. Implied volatility is the real-
time estimation of an asset’s price
as it trades.
Implied volatility tends to
increase when options
markets experience a
downtrend.
Implied volatility falls
when the options market
shows an upward trend.
Larger implied volatility
means higher option
prices.
As volatility increases, the prices
of all options on that underlying -
both calls and puts and at all strike
prices - tend to rise. This is
because the chances of all options
finishing in the money likewise
increase.
As volatility increases the deltas
of all options - both calls and puts
and at all strike prices - approach
0.50. Thus, out-of-the-money
(OTM) option deltas rise and in-
the-money option deltas fall
towards 50.
Longer-dated options' prices in
general, and at-the-money (ATM)
options for a given expiration, are
most sensitive to changes in
volatility. Every option, therefore,

7 Futures
A basic futures trading plan
should include entry and exit
strategies as well as risk
management rules.
The financial Securities
Exchange (FINSEC) in
Zimbabwe, launched the
first ever derivatives trading
platform on June 2022.This
enabled trading by retail
investors of index futures,
Stocks futures and stock
options listed on the
FINSEC DERIVASTIVES
markets
8 Cryptocurrency
Notably, in March 2020, the
Zimbabwe government
changed course and
announced its intent to
regulate rather than
completely ban
cryptocurrency. In a speech
during the Sound Prosperity
Economic Forum, Josephat
Mutepfa, the Deputy
Director for Financial
Markets and National
Payment Systems of the
RBZ, announced that the
Investors can trade futures to
speculate or hedge on the price
direction of a security, commodity, or
financial instrument. To do this,
traders purchase a futures contract,
which is a legal agreement to buy or
sell an asset at a predetermined price
at a specified time in the future.
Futures came about in the mid-19th
century, allowing grain farmers to sell
their wheat for forward delivery.1
Futures trading provides investors
with a fast and cost-effective means
of accessing global financial and
commodity markets.
Investors can trade futures to
speculate or hedge on the price
direction of a security, commodity, or
financial instrument.
A futures contract is a financial
instrument through which a buyer and
seller agree to transact an asset at a
fixed price at a future date.
Key futures markets include stock
indexes, energy, currencies, crypto
currencies, interest rates, grains,
forestry, and livestock.
Key advantages of futures trading
include access to leverage,
diversification, and hedging, while
overleverage and managing expiry
dates present potential challenges.
A futures trading platform should be
intuitive to use, offer multiple order
types, and have competitive fees and
commissions.
A crypto currency is a digital
currency, which is an alternative form
of payment created using encryption
algorithms. The use of encryption
technologies means that crypto
currencies function both as a
currency and as a virtual accounting
system. To use cryptocurrencies, you
need a cryptocurrency wallet. These
wallets can be software that is a
cloud-based service or is stored on
your computer or on your mobile
device. The wallets are the tool
through which you store your
encryption keys that confirm your
has an associated volatility risk,
and volatility risk profiles can vary
dramatically between options on
the same underlying. Traders
sometimes balance the risk of
volatility by hedging one option
with another.
Volatility is a measure of market
movement in either direction,
relative to a normal market. In
other words, if a futures market is
moving up or down more than
normal, it is considered to be
volatile. While volatility can
sometimes be regarded as
instability, it is actually an essential
component of futures markets.
When understood properly,
volatility can provide opportunities
for traders on both sides of the
market. Since futures are
derivative instruments, volatility in
futures contracts is most often
caused by factors that influence
the price of their underlying assets.
Crypto currencies are still relatively
new, and the market for these
digital currencies is very volatile.
Like most commodities, assets,
investments, or other products,
Bitcoin's price depends heavily on
supply and demand.
As an asset adopted quickly by
investors and traders, speculation
about price movements plays a
critical part in Bitcoin's value at any
given moment.
Media outlets, influencers,
opinionated industry moguls, and
well-known cryptocurrency fans
government had started
developing a fintech
framework, which would
serve as a regulatory
sandbox for cryptocurrency
companies.However, 2022
witnessed the introduction of
cryptocurrency in Zimbabwe
in the form of Gold coins.
identity and link to your create investor concerns, leading
cryptocurrency.Since to price fluctuations.
cryptocurrencies don't need banks or Bitcoin volatility is also partly
any other third party to regulate them; driven by the varying belief in its
they tend to be uninsured and are utility as a store of value and
hard to convert into a form of tangible method of value transfer.A store of
currency (such as US dollars or value is an asset's function that
euros.) In addition, since allows it to maintain value in the
cryptocurrencies are technology- future with some degree of
based intangible assets, they can be predictability. Many investors
hacked like any other intangible believe that Bitcoin will retain its
technology asset. Finally, since you value and continue growing, using
store your cryptocurrencies in a digital it as a hedge against inflation and
wallet, if you lose your wallet (or an alternative to traditional value
access to it or to wallet backups), you stores like gold or other metals.
have lost your entire cryptocurrency
investment.Before investing in a
cryptocurrency, be sure you
understand how it works, where it can
be used, and how to exchange it.
Read the webpages for the currency
itself (such as Ethereum, Bitcoin or
Litecoin) so that you fully understand
how it works, and read independent
articles on the cryptocurrencies you
are considering as well.
Use a trustworthy wallet. It is going to
take some research on your part to
choose the right wallet for your
needs. If you choose to manage your
crypto currency wallet with a local
application on your computer or
mobile device, then you will need to
protect this wallet at a level consistent
with your investment. Just like you
wouldn't carry a million dollars around
in a paper bag, don't choose an
unknown or lesser-known wallet to
protect your crypto currency. You
want to make sure that you use a
trustworthy wallet.
Have a backup strategy. Think about
what happens if your computer or
mobile device (or wherever you store
your wallet) is lost or stolen or if you
don't otherwise have access to it.
Without a backup strategy, you will
have no way of getting your crypto
currency back, and you could lose
your investment.
2.5. Underpinning theories

2.5.1.Analysis of theories in relationship to volatility

Number Theory Type Details Volatility

1 The efficient markets hypothesis. The efficient markets The 2008-2009 financial crisis
Source of document;eFinance hypothesis theory completely discredited the
Management.com states that financial EMH.The EMH doesnot claim
markets always price to be a theory that predicts the
securities correctly. future. Nor does it claim that
Volatility theories in stock prices accurately predict
financial markets
the future. Most versions of the
commence with the
EMH merely claim that the
efficient markets
hypothesis, and end stock market prices in all
with new empirical currently available public
approaches as information. As the nature of
referred by Louis.O. the information changes,
Scott. The efficient prices will also change,James
markets hypothesis A. Kostohryz.Today, the nature
theory states that of the flow of information is
financial markets highly uncertain and the
always price securities outcomes implied by the data
correctly. The efficient are highly disparate. Thus,
market hypothesis information that many years
(EMH), as a whole,
ago, under other
theorizes that the
circumstances, might have
market is generally
efficient, the theory is been taken with equanimity by
offered in three financial markets can have
different versions: game-changing market
weak; semi-strong; impacts today. Even small
and strong. increments of data can tip the
balance of probabilities of a
recession and concomitant
financial crisis decisively to
one side or another.

Thus, investors should expect

markets to be highly volatile in
the next few weeks and
months until the there is actual
resolution of recession risk –
one way or another.

Stocks and ETFs such as

AAPL, MSFT, SPY, DIA and
QQQ will likely exhibit
unusually high volatility
because every incremental
piece of new information that
becomes known will have a
large incremental impact on
their projected value.

Abba Paradza (2015),It can be

argued that the constantly
changing political and
 economic environment in
Africa is the greater reality that
influences the efficiency of
stock markets rather than their
period of existence. The
impact of

such dynamics can actually

lead to older and established
markets behaving like markets
in embryonic stage in terms of
efficiency.the sea-

sonality studies were carried

out on major markets such as
Nigeria, Ghana. Egypt and
Zim-

babwe which presented mixed

findings. However the
persistence of these return
patterns strands in opposition
of the to the efficient market
hypothesis.

On the Zimbabwe Stock

Exchange,Paradza concluded
that the market is sensitive to

past shocks so the market is

determined by past movement
and stock prices do not behave

randomly,through statistical
test.

Appiah-Kusi and Menyah

(2003),concluded that

Kenya, Zimbabwe, Egypt,

Morocco and Mauritius are
weak-form efficient

The Capital Asset Pricing This model presents a The capital asset pricing model
Model.Source of simple theory that (CAPM) helps to calculate
document;wallstreetmojo.com. delivers a simple investment risk and what
result. The theory says return on investment an
that the only reason an investor should expect. model
investor should earn starts with the idea that
more, on average, by individual investment contains
investing in one stock two types of risk:
rather than another is
that one stock is Systematic Risk– These are
riskier,Ben McClure. market risks—that is, general
perils of investing—that cannot
be diversified away. Interest
rates, recessions, and wars
are examples of systematic
risks.
Unsystematic Risk– Also
known as "specific risk," this
risk relates to individual stocks.
In more technical terms, it
represents the component of a
stock's return that is not
correlated with general market
moves.

Modern portfolio theory shows

that specific risk can be
removed or at least mitigated
through diversification of a
portfolio. The trouble is that
diversification still does not
solve the problem of
systematic risk; even a
portfolio holding all the shares
in the stock market can't
eliminate that risk. Therefore,
when calculating a deserved
return, systematic risk is what
most plagues investors.

According to Melody
Nyangara,Davis
Nyangara,Godfrey Ndlovu and
Takawira Tyavambiza on there
test ont the empirical validity of
the capital asset pricing model
(CAPM) on the Zimbabwe
Stock Exchange (ZSE) using
cross-sectional stock returns
on 31 stocks listed on the ZSE
between March 2009 and
February 2014,concluded that
although the explanatory
power of beta tends to fall
rapidly for prediction horizons
>6 months, beta significantly
explains average monthly
stock returns on the ZSE
andTests to validate the CAPM
reject its validity for the ZSE
however, primarily due to
liquidity and skewness
anomalies.They recommend
investors and analysts must
exercise extreme caution in
applying the CAPM.
3 The consumption capital asset pricing The consumption The consumption beta is
model .Image by Julie Bang © capital asset pricing based on the volatility of a
Investopedia2020 model (CCAPM) is an given stock or portfolio. The
extension of the capital CCAPM predicts that an
asset pricing model asset's return premium is
(CAPM) that uses a proportional to its consumption
consumption beta beta. The model is credited to
instead of a market Douglas Breeden. The
beta to explain CCAPM provides a
expected return fundamental understanding of
premiums over the the relationship between
risk-free rate. The beta wealth and consumption and
component of both the an investor's risk aversion. The
CCAPM and CAPM CCAPM works as an asset
formulas represents a valuation model to tell the
risk that cannot be expected premium investors
diversified away. require in order to buy a given
stock, and how that return is
affected by the risk that comes
The CCAPM from consumption-driven stock
predicts that an asset's price volatility. The quantity of
return premium is risk related to the consumption
proportional to its beta is measured by the
consumption beta. movements of the risk
premium (return on asset and
Consumption beta is risk-free rate) with
the coefficient of the consumption growth. The
regression of an CCAPM is useful in estimating
asset's returns and how much stock market
consumption growth, returns change relative to
where the CAPM's consumption growth. A higher
market beta is the consumption beta implies a
coefficient of the higher expected return on risky
regression of an assets.
asset's returns on the
market portfolio
returns. The CCAPM
incorporates many
forms of wealth
beyond stock market
wealth and provides a
framework for
understanding
variation in financial
asset returns over
many time periods.

4 Arbitrage Arbitrage pricing APT assumes markets

Pricing Theory theory (APT) is a multi-
.Source of factor asset pricing
model based on the
idea that an asset's
returns can be
sometimes misprice securities,
before the market eventually
corrects and securities move
back to fair value.Using APT,
arbitrageurs hope to take
document;efinancemanagement.com predicted using the advantage of any deviations
linear relationship from fair market value.APT
between the asset’s factors are the systematic risk
expected return and a that cannot be reduced by the
number of diversification of an investment
macroeconomic portfolio. The macroeconomic
variables that capture factors that have proven most
systematic risk,Adam reliable as price predictors
Hayes.It is a useful include unexpected changes in
tool for analyzing inflation, gross national product
portfolios from a value (GNP), corporate bond
investing perspective, spreads and shifts in the yield
in order to identify curve. Other commonly used
securities that may be factors are gross domestic
temporarily mispriced. product (GDP), commodities
The arbitrage pricing prices, market indices, and
theory was developed exchange rates.
by the economist
Stephen Ross in 1976, Admire Maparadza
as an alternative to the Dube(2020)Zimbabwe has
capital asset pricing many such arbitrage examples
model (CAPM). and these have been allowed
to exist to the detriment of the
economy and they are a
terminal wound bleeding the
economy and thus working
against other commendable
economic interventions.

The first example that jumps to

mind and which inspired this
article in the first place, is on
gold. This is easily the first as it
is a very topical issue currently
following the recent arrest of
Zimbabwe Miners Federation
president Henrietta Rushwaya
on the 26th of October 2020 at
R. Mugabe Airport for allegedly
trying to smuggle over 6kg of
gold on a flight to Dubai.

The decision by the RBZ to

maintain the ZWL rate at par
with the USD in November
2016 when they introduced the
bond notes instead of freely
floating the rate as normal
economics practice dictates.
This created a massive
arbitrage gap where only a few
individuals and entities who
could access the “cheap” USD
from the RBZ made a killing,
while exporters were getting
chocked as they were

5 The Modigliani-Miller Theorem
compelled to sell their
exporting proceeds at a
ridiculous 1:1.
The Modigliani-Miller
theorem (M&M) states
that the market value
of a company is
correctly calculated as
the present value of its
future earnings and its
underlying assets, and
is independent of its
capital structure,
James Chen.At its
most basic level, the
theorem argues that,
with certain
assumptions in place,
it is irrelevant whether
a company finances its
growth by borrowing,
by issuing stock
shares, or by
reinvesting its profits.
 The Modigliani-Miller
theorem states that a
company's capital
structure is not a
factor in its value.
 Market value is
determined by the
present value of
future earnings, the
theorem states.
 arly on, the two
economists realized
that their initial
theorem left out a
number of relevant
factors. It left out
such matters as
taxes and financing
costs, effectively
arguing its point in
the vacuum of a
"perfectly efficient
market."
 Later versions of
their theorem
addressed these
issues, including
"Corporate Income
Taxes and the Cost
of Capital: A
Correction,"
published in the
1960s
Enard
Mutenheriand
Chipo
Munangagwa
(2015)focused
there
 studyon
determinants of
corporate structure
decisions of firms
 during multicurrency
regime in Zimbabwe.
Zimbabwe adopted
the use of multiple
currencies in
February 2009, as a
way ofcurbing
hyperinflation.This
debate is built upon
Modigliani and
Miller’s (1958)
proposition that the
mix between debt
and equity does not
affect the firm’s cost
of capital.

 Studies that were

done in the past
show that a number
of factors affect
capital structure
choice. The most
commonly and
popular determinants
are profitability,
tangibility size, firm
growth, non-debt tax
shield, tax and
liquidity in zimbabwe

 The study has found

profitability,
tangibility and firm
size to be significant
determinants of
capital structure
decisions among
Zimbabwean firms
during the
multicurrency
regime.

6 No arbitrage and information in A no-arbitrage pricing In derivatives markets,

financial markets, model is a market arbitrage is the certainty of
value model in which profiting from a price difference
arbitrage cannot occur. between a derivative and a
No-arbitrage models portfolio of assets that
are extensively used replicates the derivative’s
for pricing “derivative” cashflows.
financial instruments;
that is, financial Derivatives are priced using
instruments for which the no-arbitrage or arbitrage-
 the amounts paid to free principle: the price of the
the instrument owners derivative is set at the same
are based on the level as the value of the
values of other replicating portfolio, so that no
financial instruments. trader can make a risk-free
profit by buying one and selling
the other. If any arbitrage
opportunities do arise, they
quickly disappear as traders
taking advantage of the
arbitrage push the derivative’s
price until it equals the value of
replicating portfolios.

Tapiwanashe
Mangwiro(2022)Financial
Securities Exchange
(FINSEC), launched the first
ever derivatives trading
platform in Zimbabwe while
trading commenced inthatyear
in what should further widen
investment options for
investors in the country.

7 Risk Neutral Pricing and Measures A risk neutral measure

is a probability
measure used in
mathematical finance
to aid in pricing
derivatives and other
financial assets. Risk
neutral measures give
investors a
mathematical
interpretation of the
overall market’s risk
averseness to a
particular asset, which
must be taken into
account in order to
estimate the correct
price for that asset. A
risk-neutral measure
for a market can be
derived using
assumptions held by
the fundamental
theorem of asset
pricing, a framework in
financial mathematics
used to study real-
world financial
markets.
 In the fundamental
theorem of asset
pricing, it is assumed
that there are never
opportunities for
arbitrage, or an
investment that
continuously and
reliably makes money
with no upfront cost to
the investor.

FIGURE 1:2

2.6. Analysis of theories in relationship to other research variables

Number Theory type Finance variable Investment variable Business environment / Theory
volatile market impact

1 The efficient According to Burton The Efficient Markets Efficient markets

markets G. Malkiel,the efficient Hypothesis (EMH) is an hypothesis (EMH) asserts
hypothesis. market hypothesis is investment theory primarily that in an efficient market
associated with the derived from concepts price fully
idea of a random attributed to Eugene
walk,which is a term Fama’s research as Reflect available
loosely used in the detailed in his 1970 book, information. This implies
finance literature to “Efficient Capital that investor can expect
characterize a price Markets,CFI.Fama put forth to earn merely risk-
series where all the basic idea that it is adjusted return from an
subsequent price virtually impossible to investment as prices
changes represent consistently “beat the move instantaneously
random departures market” – to make and randomly to any
from previous investment returns that
prices.The basic outperform the overall New information.
efficient market market average as Efficiency is defined at
hypothesis posits that reflected by major stock three different levels,
the market cannot be indexes such as the S&P according to the level of
beaten because it 500 Index.the only way an
Information reflected in
incorporates all investor can obtain higher
the prices. Three levels
important determining returns is by purchasing
of EMH are expressed as
information into riskier investments, andit
follows: weak-
current share prices. should be impossible to
Therefore, stocks outperform the overall form, semi-strong and
trade at the fairest market through expert strong form. Weak-form
value, meaning that stock selection or market version of EMH asserts
they can't be timing.Proponents of EMH that prices of
purchased posit that investors benefit
undervalued or sold from investing in a low-cost, financial assets reflect all
overvalued. passive portfolio.Weak information contained in
Advocates for the efficiency - This type of the past prices. Semi-
weak form efficiency EMH claims that all past strong version
theory believe that if prices of a stock are
the fundamental reflected in today's stock postulates that prices
analysis is used, price. Therefore, technical reflect all the publicly
undervalued and analysis cannot be used to available information.
overvalued stocks predict and beat the Lastly, strong-form
can be determined, market.the efficient market posits that prices of
and investors can hypothesis supports that financial assets reflect, in
research companies' people are rational addition to information on
financial statements investors who are important past prices and
to increase their part of financial
chances of making market,Hakan Yildirim.The publicly available
higher-than-market- term information, inside
average profits.the information [Fama (1970,
EMH in its purest “efficiency” denotes the fact 1991)].
(strong) form states that investors have no
that all information in opportunity of obtaining
a market, whether abnormal profits from
public or private, is capital
accounted for in a market transactions as
stock's price.Semi- compared to other
strong efficiency -This investors, they cannot beat
form of EMH the market.
implies all public (but
not non-public) In
information is
case semi-strong form of
calculated into a
EMH is present on a capital
stock's current share
market, neither technical
price.Weak
nor fundamental analysis
efficiency - This type
can
of EMH claims that all
past prices of a stock determine the way an
are reflected in investor should split his
today's stock funds so that the obtained
price.The concept of profitability is higher than
efficiency is central to that
finance,Alexandra
Gabriela ğiĠan.Fama achieved in case of
(1969 and 1970), the investment in a random
weak form of EMH portfolio of financial assets.
was presented as the The strong form of EMH
state of fact in which assumes that prices
the incorporate all the available
information on a market,
current prices of which
financial assets
incorporate, at any includes: historical financial
moment, all the information (weak form), all
existing historical new public information
financial (semi-strong form) and all
information.the semi-
private information
strong form assumes
regarding a financial asset.
that financial assets’
prices reflect, at

any moment, all the

 information existent
on a market, including
historical prices and
other historical

information (which
means this form
incorporates also the
weak form of EMH),
and, additionally, the
prices

change rapidly and

without biases to
incorporate any other
new public
information released
on the market.

2 The Capital The capital asset these markets are CAPM cannot be used in
Asset Pricing pricing model (CAPM) dominated by rational, risk- isolation because it
Model is an idealized averse investors, who seek necessarily simplifies the
portrayal of how to maximize satisfaction world of financial
financial markets from returns on their markets.CAPM, a
price securities and investments.investors may theoretical representation
thereby determine expect a particular return of the behavior of
expected returns on when they buy a particular financial
capital investments. stock, they may be markets.securities
The model provides a disappointed or pleasantly markets are very
methodology for surprised, because competitive and efficient
quantifying risk and fluctuations in stock prices (that is, relevant
translating that risk result in fluctuating returns. information about the
into estimates of Therefore common stocks companies is quickly and
expected return on are considered risky universally distributed
equity. ,David W. securities. (In contrast, and absorbed);The first
Mullins, Jr.financial because the returns on assumption presumes a
managers can use it some securities, such as financial market
to supplement other Treasury bills, do not differ populated by highly
techniques and their from their expected returns, sophisticated, well-
own judgment in their they are considered riskless informed buyers and
attempts to develop securities.) An sellers.The second
realistic and useful underpinning of CAPM is assumption describes
cost of equity the observation that risky investors who care about
calculations.can be stocks can be combined so wealth and prefer more to
employed in that the combination (the less. In addition, the
estimating a portfolio) is less risky than hypothetical investors of
company’s cost of any of its modern financial theory
equity capital. the components.divide a demand a premium in the
model can be a useful security’s total risk into form of higher expected
addition to the unsystematic risk, the returns for the risks they
financial manager’s portion peculiar to the assume.These include
analytical tool company that can be frictionless markets
kit.CAPM deals with diversified away, and without imperfections like
the risks and returns systematic risk, the transaction costs, taxes,
on financial securities nondiversifiable portion that and restrictions on
and defines them is related to the movement borrowing and short
 precisely, if of the stock market and is selling.
arbitrarily.The rate of therefore unavoidable
return an investor
receives from buying
a common stock and
holding it for a given
period of time is equal
to the cash dividends
received plus the
capital gain (or minus
the capital loss)
during the holding
period divided by the
purchase price of the
security.

3 The The CCAPM The beta component of The CCAPM is useful in

consumption incorporates many both the CCAPM and estimating how much
capital asset forms of wealth CAPM formulas represents stock market returns
pricing model beyond stock market a risk that cannot be change relative to
wealth and provides a diversified away. The consumption
framework for CCAPM predicts that an growth.Hamori (1992)
understanding asset's return premium is found that the CCAPM
variation in financial proportional to its does explain the
asset returns over consumption Japanese asset
many time beta.Consumption beta is markets.He argued that
periods.The CCAPM the coefficient of the
works as an asset regression of an asset's the CCAPM can explain
valuation model to tell returns and consumption the Japanese asset
you the expected growth, where the CAPM's markets but not the asset
premium investors market beta is the returns in U.S. probably
require in order to buy coefficient of the regression due to institutional
a given stock, and of an asset's returns on the differences between two
how that return is market portfolio returns. countries, such as tax
affected by the risk distortion and monetary
that comes from CAPM assumes that an
consumption-driven investor cares about the factors.
stock price volatility. market return and how their
portfolio's return varies from Most of the empirical
The CCAPM is useful
that return benchmark. The tests of the CAPM and
in estimating how
CCAPM factors in CCAPM have been only
much stock market
consumption is a means of conducted for devel-
returns change
relative to understanding and
oped financial
consumption growth. calculating an expected
markets.The
A higher consumption return on
consumption-based
beta implies a higher investment,Christopher
capital asset pricing
expected return on IGHODARO.According to
model (CCAPM) was
risky assets. Cumby (1988),
originally introduced by
consumption-based
The CCAPM Capital Asset Pricing Rubinstein (1976), Lucas
predicts that an Model, or (1978) and Breeden
asset's return (1979) for the purpose of
premium is CCAPM, is a model of
linking consumption to
proportional to its the determination of
consumption beta. expected asset returns the stock market
 Consumption beta More recently, some
is the coefficient of authors have
the regression of an incorporated the housing
asset's returns and utility function into the
consumption growth, CCAPM (e.g.,
where the CAPM's
market beta is the Piazzesi et al. 2007)
coefficient of the
regression of an
asset's returns on the
market portfolio
returns.

The consumption
capital asset pricing
model (CCAPM) is an
extension of the
capital asset pricing
model (CAPM) that
uses a consumption
beta instead of a
market beta to explain
expected return
premiums over the
risk-free rate.

FIGURE 1:3

2.7 frameworks and key concepts

2.7.1. The structure of the financial market and its functions

It is necessary to understand the structure of the financial market in relation to Zimbabwe financial structure. The knowledge
of how the financial market must be arranged and how its participants must interact with each other, help reduce
sophistications in the appreciation of how abnormally Zimbabwe finance system operates.With the world view, all the
national and international markets make up the financial market, hence the system tend to incorporates banks, pension,
insurance, currency funds and many other economic institutions that help accumulate and redistribute money. Being a
complex system, the financial market has a multilevel structure including 5 market segments:
The structure of the financial market

Source of diagram:

1. Foreign exchange market

It is the market in which the subject of its participant’s interaction is the currency and everything that is related to its
equivalent. Derivative instruments may also serve as trading instruments. Depending on the form, there settlement can be
cash and non-cash. According to the transaction term, the market can be current spot and derivatives currency markets.
Derivatives market contracts can be:

 Futures feature pricing, based according to the movement of currency exchange rates, intermediary is an
exchange, guarantees are the reserve deposit.

 Forward contracts. A forward contract is customized between two parties at an agreed price; intermediaries of the
transaction are commercial banks, there are no guarantees.

 Options and currency swaps.

Currency transactions can be performed both on the exchange and on the over-the-counter market.

Foreign exchange market or Currency market in Zimbabwe

Victor Bhoroma (2020), since the relaunch of the interbank market in February 2019, Zimbabwe has experienced challenges
in attracting foreign currency to the financial sector. As a result this has created a sustained foreign currency shortage in the
economy where producers have to rely on the parallel market for liquidity to import essential raw materials and pay for
external obligations. In the case of Zimbabwe, the Foreign Exchange Market is essential to facilitate international trade.

Spot dealing

Foreign exchange spot dealing in banks involves the purchase or sale of foreign currencies in exchange for another
currency which must be delivered within a period not exceeding two business days, for example cbz.

Forward exchange contracts (FECs) FEC is an agreement of purchase or sale of foreign currency for delivery on a specified
date in the future that is more than two working days. FECs help in hedging (minimizing risk) against adverse rates
movements.
Currency Swaps

Currency swaps is the simultaneous purchase and sale of an amount of foreign currency on two different dates which are
usually spot and forward.

According to Zimbabwe Country Commercial Guide (2022), the Reserve Bank of Zimbabwe (RBZ) continued to rely on the
auction introduced in June 2020 to purportedly establish a market-based exchange rate and allocate foreign currency. The
government of Zimbabwe directed all transactions should be conducted at the interbank rate although it continues to
conduct weekly auctions to allocate foreign exchange. The willing buyer -willing-seller scheme was introduced and meant to
determine the true value of the Zimbabwe dollar, yet the RBZ allegedly influences both the interbank and the auction rates
leading to a thriving parallel market for foreign exchange, with rates almost twice the auction and interbank rates. Lack of
adequate foreign exchange has resulted in a backlog of around US$200 million, with those successful at the auction waiting
for up to 12 weeks to get their foreign exchange allocations. Foreign currency retention requirements have challenged
exporters, particularly when the gap between the auction and parallel-market rate has grown to such extremes, and
international firms have faced challenges repatriating profits. De-risking by international banks has resulted in very few
international correspondent banking relationships. High levels of corruption and central bank quasi-fiscal activities have
both contributed to Zimbabwe’s macroeconomic instability. Zimbabwe’s high external debt of US$14.4 billion and arrears to
international financial institutions of around US$6.6 billion limit its ability to access official development assistance at
concessional rates and credit from international capital markets.Albert Makochekanwa (2013), the country has over the
years instituted other targeted supporting exchange rates, for instance there might be a separate ZWD: USD exchange
rates for gold sales, tobacco sales, government transactions, fuels imports as well as the official and black market rates.
Thus, sometimes, there will be at least six ZWD to USD exchange rates fully operating in the economy. According to Rbz,
the Bank introduced this facility in the second half of 2021, on 30 August 2021, to cater for the general foreign currency
requirements for the public at the official exchange rate. A total amount ofUS$23.1 million was disbursed to 461 908
individuals as at 31 December 2021. The Bank was of the considered view that this facility would meet the small foreign
currency requirements of the public for, among other things, medical expenses and fuel at the official exchange rate and
thus improving the supply of foreign exchange in the market. Whilst the facility has gone a long way in assisting the needy,
the facility has been highjacked by those that seek to make arbitrage profits.

2. Credit market

The credit market has a three-tier structure and has tighter requirements for participants to implement their obligations. This
market suggests a redistribution of spare funds from those who have them to those who do not have them. The market have
the following levels:

• Credit relations between legal entities

 The central bank and commercial banks. Here, the central bank acts as a regulator. By means of loans, the central
bank regulates the money supply, supports banks, facing temporary troubles, keeps the liquidity of banking system
and covers the cash gaps.
 Commercial banks and their clients

The Zimbabwean scenario encompasses the same system whereby the central bank acts as a regulator. The Reserve Bank
of Zimbabwe Act [Chapter 22:15] empowers the Reserve Bank to supervise banking institutions and foster stability and
proper functioning of the financial system. The Bank continued to negotiate for offshore lines of credit to support the foreign
exchange auction system, refinance existing obligations as well as meeting the country’s balance of payments requirements
in 2021.
According to Zimbabwe banking Act 2011 amendments ,the Reserve Bank may grant, to any banking institution which holds
an account with it, loans that are secured by any of the following assets— (a) assets specified in subsection (1) of section 49
of the Reserve Bank of Zimbabwe Act [Chapter 22:15]; or (b) other securities issued or guaranteed by, and payable within,
Zimbabwe, denominated in Zimbabwean currency and forming part of a public issue; or (c) warehouse receipts and
documents of title issued in respect of staple commodities or other goods duly insured against risk of loss or damage; or (d)
deposits with the Reserve Bank or with a depository acceptable to the Reserve Bank of any assets which the Reserve Bank
is permitted to buy or sell or deal in under the Reserve Bank of Zimbabwe Act [Chapter 22:15]. (2) A loan may be granted in
terms of subsection (1) on such terms and conditions as the Reserve Bank may determine and for a period not exceeding 3
months: Provided that such a loan may be renewed or extended for further periods not exceeding 3 months at a time. (4)
Loans granted to a banking institution in terms of subsection (1) shall be made only at the banking institution’s head office in
Zimbabwe.
In Zimbabwe there are five principal agencies charged with the responsibility of financial regulation and supervision. These
are the Reserve Bank of Zimbabwe (RBZ), The Ministry of Finance, The Deposit Protection Corporation, The Securities
Exchange Commission (SEC) and The Insurance and Pensions Commission.

3. Insurance market

It is a separate segment, as insurance companies are one of the main investors at the global level. Providing
various kinds of insurance services, they accumulate capital, which they can temporarily invest in deposits,
metals, and the stock market. Brian Njikizana and Michael de Beer (2020) ,in Zimbabwe the introduction of
Zimbabwean dollar and change of functional currency from united states dollar as effected by by Statutory
Instrument 149 of 2019.insurers had to price their policies in local currency, and consumer confidence was also
adversely affected due to the loss in value that policyholders experienced during the previous currency transition
in Zimbabwe in 2008/9.The onset of hyperinflation in Zimbabwe further compounded the pressure on
purchasing power and resulted in the constant upward reviews of sums insured as well as spikes in the cost of
insurance claims and operating costs. Insurers benefitted from the hyperinflation as most policyholders could
not update the sums insured in-line with inflation quickly enough, resulting in a lower amount of claims paid
out. Challenges in accessing foreign currency resulted in reduced capacity to settle accumulated legacy creditors
and underwrite foreign currency denominated policies. The introduction of the foreign currency auction system
provided for improved access to foreign currency which made it easier for insurers to settle foreign currency
obligations. Zimbabwe’s insurance industry has been reported by researchandmarkets.com to be facing stiff
competition as the insurance companies not only compete with each other, but also compete with the risk
retention groups, government, and self-insurance. Many large organizations self-insure for most of their
employee benefits like health coverage that lowers market scope for insurance companies. The government's
policy of insuring the uninsured has progressively pushed the insurance penetration in Zimbabwe and the
proliferation of insurance schemes. Through different distribution channels, insurance companies in Zimbabwe
are providing a wide variety of products with varying levels of complexity that are designed for different groups
of businesses, individuals and other organizations.

4. Investment market

It is a system based on free competition and partnerships between agents of investment activity. It has much in common
with the stock market, where the funds are invested in securities, but it can also take the form of capital investments, fixed
assets, etc. Simply put, the investment market provides investing money in any asset for the purpose of subsequent
Tafara Mtutu (2022), Global
earnings over a period of time due to an increase in an asset price or dividend payments.
geopolitical tension that is centred on the Russia-Ukraine crisis has given rise to several risks that have
shaken global capital markets. Among these risks is global inflation, which surged beyond 9% in May
2022.n response to the rising inflation, policymakers in developed markets hinted that there will be
multiple interest rate hikes throughout 2022 to counter the rising inflation, and some central banks in
developing markets have already begun increasing rates in a bid to maintain currency stability over and
above the incentive to slow inflation down. The unexpected volatility in the supply of critical
commodities like crude oil, natural gas, corn, and wheat at the onset of the conflict saw prices of these
commodities skyrocket to record levels within two months with ripple effects on global price levels.
According to economic theory on business cycles, real assets often benefit the most from unexpected
inflation. In this case, commodities at the centre of the Russia-Ukraine conflict benefited the most with
double-digit returns in the first five months of 2022.
On the other hand, equities tend to underperform when actual inflation moves ahead of expected
inflation. In the five months to May 2022, the Dow Jones Industrial, S&P 500, and Nasdaq Indices lost
8,6%, 12,8%, and 22,5%, respectively. In European markets, Germany’s DAX weakened by 8,3% while
the FTSE 100 recorded marginal gains of 3%. The poor performance in equities was also magnified by
a reversal of the herding effect which manifested in technology stocks.in Zimbabwe, most equities
have recorded positive performance in the double digits, if not triple digits.

The ZSE returned 113,2% in the five months to May 2022 in nominal returns, and standout YTD
performers on the bourse include Axia (+304%), Tanganda (+273%), and Innscor (+224%).We
attribute the low integration of the country with global markets to the disconnect between the
global and local capital markets. According to the Singer-Terhaar model which adjusts capital
markets expectations for global integration, market returns are heavily influenced by factors that
drive global market returns in extensively integrated markets. On the other hand, markets that are
less integrated with the global market are likely to experience a volatility in returns that is mostly
driven by country-specific factors.We note Zimbabwe’s capital markets are one of the less integrated
markets given that (i) the country’s currency is not actively traded in global markets, (ii) low capital
mobility which nullifies the economic transmission effects that manifest through changes in currency
rates, interest rates, and inflation rates, and (iii) declining international investor participation on the
Zimbabwe Stock Exchange.
5. Stock market: securities

 It suggests a complex interaction between the market participants in terms of issuance and turnover of securities.
Securities can be traded on both stock exchanges and beyond them. On the exchanges, you can trade only
enlisted assets, i.e. which meet certain requirements. Assets can be:
 Stocks. They can be common stocks and preferred stocks. Holders of common stock typically have voting
privileges, whereas holders of preferred stock may not. However, preferred stockholders receive a fixed dividend
from the company, while common shareholders may or may not receive one, depending on the decisions of the
board of directors.
 Bonds. Bonds can be (issuer - company), municipal (issuer - local authorities), state, international (for example,
Eurobonds). Bonds can also be preferential (the holder will be among the first to receive money during the
liquidation of the company) and subordinated (more profitable, but riskier). There is a gradation on the coupon rate
and yield to maturity.
 Indices - consolidated instruments consisting of a basket of securities, which reflect average price statistics for the
sector or for the industry in general.
 Derivatives. They are derived instruments, which make up a multi-level system of securities.
 ETF securities. An ETF is an index fund whose shares (units) are traded on an exchange. The fund's investment
structure can be anyone, ranging from securities of companies in a particular sector to a diversified portfolio,
including stocks, gold, etc. Unlike shares of investment funds, you can perform any operations with ETF shares, as
well as with securities.

Zenas Chambers, ChimwaMurombe Legal Practice (2021),for Zimbabwe to be able to attract investors, it needs to have a
predictable, transparent and non-discriminatory business climate and it should have a balanced framework on rules of
foreign direct investment. Investors need assurance that there is a fair and non-discriminatory framework in terms of the
investment in Zimbabwe. A rules-based system increases the opportunities of attracting investors.

The Zimbabwe Stock Exchange (ZSE) is the backbone of Zimbabwe’s capital market with a history dating back
as far as 1896. It is one of the oldest and most highly diversified exchanges in Africa given listings spanning all
key sectors of the economy. Currently bec
Financial Securities Exchange (Private) Limited (FINSEC) is an alternative trading platform licensed by the
Securities and Exchange Commission of Zimbabwe as a Securities Exchange.

While Victoria Falls Stock Exchange (VFEX), a subsidiary of the Zimbabwe Stock Exchange, is a financial
offshore center that trades in foreign currency.

According to an article by The Anchor published on July 8, 2022, VFEX will launch its mobile securities
trading platform, VFEX-Direct, at the end of this month in a move meant to simplify trading, especially the
capture of the burgeoning retail investor community.

According to the ZSE prospective Exchange Traded Product issuers will have to prove that the underlying asset
or security track is sufficiently liquid to satisfy the exchange such that there will be proper price formation in the
product.

FINSEC introduced automated contract writing and derivatives trading, complete with direct integration of the
trading, clearing, custody, and settlement facilities. The market is on a 6-month trial window to enable market
participants and investors to familiarise themselves with the newly established market.The contract gives the
right to buy or sell the securities at the previously agreed price irrespective of the price of the same in the spot
market. The value of this contractual agreement changes with the price movement of the mentioned security in
the spot market.

In Zimbabwe foreign participation slowed in the past year ,on zse.In 2021, foreign participation remained
sluggish with disposals accounting for 19 percent of the total turnover while purchases claimed a mere 4 percent
of the same as foreigners continued to shy away from the Zimbabwean stock market due to delays in movement
of international payments. However, local investors spurred activity both on the buy and sell-side as they piled
stocks to hedge against economic volatility, subsequently accounting for 81 percent and 96 percent of the sell
and buy-side respectively.Platforms such as ZSE Direct and C-Trade, have allowed ease of buying and selling
of shares by retail investors, but the values still remained low.

The classification

The state and the central banks (regulating and supervising organizations). Managing the biggest
volume of the capital, these agents mostly perform supervising and regulation function. The Ministry of
Finance and Economic Development and Reserve Bank of Zimbabwe in Zimbabwe are represent the
state and central government by regulating and supervising. FINANCE minister Mthuli Ncube(2022)
said that he has been sued over 120 times over his unpopular economic measures.Ncube has
implemented several controversial decisions mostly related to currency. As well known, he
implemented a policy of allowing the settlement of US dollar debts, in local currency,in February
2019.Ncube lost a case in May 2022, when the High Court ruled that Ncube usurped Parliament's
powers through enacting Statutory Instrument 123A of 2020 which created a new tax regime for the
fuel industry, and some others but still retains the officeAccording to Zimbabwean Independent news
20 November a concerned Zimbabwean citizen has taken Finance and Economic Development minister
Mthuli Ncube and the accountant-general to court seeking an order to compel the government to cause
all unpublished loans and guarantees contracted by the government and the total debt that the country
owes to be published in the Government Gazette.The Permanent Secretary of Ministry of Finance and
Economic Development sometimes fails to communicate financial information when needed. Finance
and Economic Development ministry secretary George Guvamatanga on 23 August 2022 is reported to
failto appear before Parliament’s Public Accounts Committee (PAC) to explain government’s US$9,6
billion over-expenditure incurred between 2015 and 2018.According to Zimlive.com(2022), Finance
ministry secretary George Guvamatanga was on Monday accused of issuing a false statement after he
claimed that current salaries of civil servants were comparable to the dollarisation era when the lowest-
paid public sector worker earned US$540.Tagwirei, a close ally of President Emmerson Mnangagwa,
has won billions worth of tenders from the government in the last 10 years as reported in most local and
 foreign newspapers.One of his many companies, Landela Investments, reportedly received US$110
million from the government to import buses for the state run Zimbabwe United Passenger Company
(ZUPCO) without going to tender.The United States Department of the Treasury’s Office of Foreign
Assets Control (OFAC) has since slapped the business tycoon and his Sakunda Holdings with sanctions
for allegedly providing support to the Zanu PF regime and promoting corruption.Last year, Tagwirei,
after being sanctioned for corruption, continued to do business by relocating his network to Mauritius.

 Regulators (regulatory and supervisory institutions). Establishments that do not take direct part in transactions
(that is why they cannot be referred to intermediaries, but the perform a controlling function. The supervisory
function is also carried out by the central bank and the state government, but it can also be a separate institution,
like a self-regulatory organization (SRO).In Zimbabwe we have The Deposit Protection Corporation, The Securities
Exchange Commission (SEC) and The Insurance and Pensions Commission. Regulation is necessary to ensure
consumer’s confidence in the financial industry.

The Deposit Protection Corporation

Deposit protection is a scheme established by government to protect depositors against the loss of their insured deposits
placed with member institutions licenced to operate banking or finance business. As an integral component of an effective
financial safety net, a Deposit Protection Scheme enhances consumer protection by providing explicit protection to
depositors. Depositors will know when, how much and how their deposits are protected in the event of a bank
failure.Besides compensating depositors in the event of a bank failure, DPC actively participates in the resolution of failing or
failed member institutions and liquidation of closed banks. DPC gets its funding from quarterly premium levies collected from
institutions. Membership is mandatory by law for all deposit-taking institutions registered under the Banking Act
(Chapter 24:20), Building Societies Act. Deposits with Asset Managers are currently not covered by the DPC. DPC promotes
public confidence in the Zimbabwean financial system by protecting depositors against the loss of their deposits. Deposit
insurance complements the supervisory and regulatory framework by providing incentives for sound risk
management in the financial system. Deposit protection reduces the likelihood of panic withdrawals and bank
runs thereby enhancing stability and confidence in the financial sector. Deposit protection contributes to the the
stability of the financial system by dealing with bank failures expeditiously and reimbursing depositors
promptly.

The Securities Exchange Commission (SEC)

The Securities and Exchange Commission of Zimbabwe was established through the enactment of the Securities
Act (Chapter 24:25). Section 3 of the Act provides for the establishment of the Securities and Exchange
Commission which is the regulatory body for the securities and capital markets in Zimbabwe. Commissioners
were appointed on 1 September 2008 whilst the Secretariat was established in 2009.

The SECZ’s Key functions are:

 To regulate trading and dealing in securities; and

 To register, supervise and regulate securities exchanges
 To license, supervise and regulate licensed persons
 To encourage the development of free, fair and orderly capital and securities markets in Zimbabwe
 To advise the Government of Zimbabwe on all matter relating to securities and capital markets
 To promote investor education

The Insurance and Pensions Commission.

The Insurance and Pensions Commission is a statutory body regulating insurance and pensions business in Zimbabwe
under an enactment of the insurance and Pension Commission Act Chapter 24:21.The Insurance and Pensions
Commission (IPEC) regulates, supervises and strengthens the insurance and pension industry in Zimbabwe for the
protection of policyholders and pension scheme members. In pursuit of its mandate to protect the interests of policyholders
and scheme members, IPEC has therefore, developed and issued a Guideline for the insurance and pensions Industry on
adjusting insurance and pension values in response to the currency reforms in terms of Section 3 (1) (a) of Statutory
Instrument 69 of 2020.

 Financial Services Companies (organizations providing financial market services and financial intermediaries).
These are institutions involved in organizational work: currency, stock and commodity exchanges, brokers,
underwriters, auditors, depositories, registrars, clearing and consulting companies. According to Lusha’s database
of business leads from financial services companies in Zimbabwe, there are
31 companies are listed.

Financial services companies in Zimbabwe

Number Firm name Services

1 SMEDCO

2 Kreamorn

3 National Building Society

4 EFT Corporation Ltd

5 FMC FINANCE

6 African Century Limited

7 Coverlink Holdings (Pvt) Ltd. Official

8 Fidelity Life Assurance

9 CABS
 10 Stanbic Bank Zimbabwe

11 ZB Financial Holdings Limited

12 FBC Holdings Limited

13 NMB Bank Limited Zimbabwe

14 First Mutual Holdings Limited

15 Masawara Zimbabwe

16 SEC ZIM

17 Platinum Financial Solutions (Pvt) Ltd

18 Platinum Investment Managers (Pvt)

Limited

19 Access Finance

20 Netpay Zimbabwe

21 Platinum Securities (Pvt) Ltd

22 ZSS Shared Services

23 African Actuarial Consultants

24 Harare Receivables Exchange

25 Training & Advisory Services

26 First Transfer Secretaries (Private)

Limited

27 Tax Support Services Zimbabwe

28 ICEcash

29 Untu Microfinance

30 Golix

31 IH Group

 Banks (financial intermediaries). They are intermediaries involved in the capital distribution, market regulation and supervision
for the established rules compliance.
 Legal entities (lenders, investors, borrowers). The most extensive group of participants: companies engaged in the
placement of clients' pension savings, investment services, insurance companies, hedge funds, trust management
companies, brokers, dealers, individual lending organizations, companies engaged in any type of financial activity,
participating the in money turnover.

 Individuals (lenders, borrowers, investors): traders, speculators, individual asset managers, long-term investors,
and just ordinary people, as it was mentioned at the beginning of the part.]
Important indicators of the financial market - a note for trader

For efficient trading and a perfect grasp of Forex affairs, a trader needs to know the indicators that help assess the situation
in the financial market. These indicators include periodic releases of macro- and microeconomic data on the market state
intended for more accurate forecasts and productive analysis.  GDP, unemployment and inflation levels, currency or
securities growth or fall rates also belong to those indicators. As a rule, experienced traders actively use  economic
calendars freely provided by brokers. I recommend you take up this habit if you haven't yet. There is a brief description of
some most important indicators, recorded in the economic calendar and some tips on how to analyze them:

 Interest rate. It is one of the major economic tools to manage the money supply, thereby adjusting the inflation. It
the interest rate gives loans to commercial banks. A higher interest rate increases interest rates for credits and
deposits and so encourages consumers to invest. This, in its turn, reduces the inflation rate. The influence of
raising the interest rate depends on a country’s economy. For advanced economies (for example, the USA), a
higher interest rate increases the exchange rate of the national currency. In less developed countries, raising the
interest rate can be seen as a try to curb stagnation and so increase investors’ interest.
 Non-Farm Payrolls. Report on the change in the number of jobs in the US non-farm sector. It is considered to be
one of the most news reports, but its impact on the US dollar rate lasts a relatively short time (a few hours). It is
released on the first Friday of the month at 1.30 p.m. GMT. In theory, the US dollar exchange rate will be
influenced if the Non-Farm actual data deviates by more than 40,000 from the forecasts. In practice, much
depends on the accompanying statistics and investors’ sentiment.
 Consumer Price Index (CPI). It measures changes in the price level of a market basket of consumer goods and
services purchased by households in the country. Changes in the CPI are used to assess price changes
associated with the cost of living The index for the current year is analyzed, compared to benchmark (reference)
indicator. The statistical base for calculation is recommended by IMF, EBRD, UN, but there is no single approach,
each country has its own peculiarities of calculation. The calculation methodology can be based on Lowe index,
Paasche and Laspeyres price indices. If the index declines it means that consumer purchasing power (real
demand) also declines and can partially suggest higher inflation growth rate.

I think everything is clear about such indicators as GDP, inflation, unemployment: the better the indicator, the more positive
is the sentiment of investors in the currency and stock markets.

An important point: the economic calendar is only an information complementary tool and it can in no way serve as the
major tool to base trading strategies on. At the time of the news release, the market is especially volatile; therefore, the
calendar is often used the other way around in order to exit trades.

If you are still willing to try trading on economic news, I offer you a few tips:

 Compare the actual value with the forecast. If, for example, the GDP growth was 2%, compared to the forecast of
2.5%, it will have a negative influence on the market. Keep in mind, that the data can be revised.
 Assess the chances for an event and investors’ expectations. For example, if the Fed is expected to hike the
federal funds rate at the upcoming meeting, investors will consider it in advance and they won’t be any strong
swings at the moment of the news release.
 Compare the news importance with other factors. For example, while in quiet times, the release of statistics on US
crude oil stockpile has a quite strong influence on the foreign exchange rates, as well as other trading instruments,
then, during the peak of the US-China trade war, these data were hardly noticed.

Insurance
 KPMG highlighted that the year 2020 started off with most insurers experiencing pressure on their real earnings as
a result of net monetary losses incurred due to the change of functional currency from the United States Dollar
(“USD”) to the Zimbabwean Dollar (“ZWL”), effected by Statutory Instrument 149 of 2019. The instrument stated
the ZWL as the sole currency for legal tender and consequently insurers had to price their policies in local
 currency. To make matters more difficult, consumer confidence was also adversely affected due to the loss in
value that policyholders experienced during the previous currency transition in Zimbabwe in 2008/9.
 The Zimbabwean insurance industry was also affected by the global outbreak of the COVID-19 pandemic which
led to unprecedented disruption and created material uncertainty. The successive lockdowns first introduced on 30
March 2020 as well as other restrictions to manage the spread of the virus had a far-reaching negative impact on
the level of aggregate demand and economic activity within the country. The erosion of disposable income across
the economy coupled with uncertainty over the ability of the sector to cover claims against the impact of the
pandemic have resulted in a low appetite for insurance products.
 Restrictions on movement and adoption of working from home also resulted in decreased underwriting volumes
and a slowdown in collection of premiums across the industry. The underwriting business is mainly carried out
through physical interaction in Zimbabwe so new business was limited. Retail consumer demand for insurance slid
because of low disposable income, exacerbated by the severely affected informal sector that accounts for a
significant segment of the economy.

2.7.2. Investment structures

Investments are generally held on either:

 an individual basis, or
 on a pooled basis, where the investment is owned beneficially by a number of investors that may be pension and
non-pension based.

Where pooled there are a number of structures that may be used. The legal structure will often not reflect the underlying
investment. It can be viewed as a tool employed to allow multiple investors to invest in the underlying investment.  The legal
structure used, and in which country it is based, can have many implications for investors. These include what (if any) tax is
payable, what fees are charged and what legal recourse is available should the investment fail. For example, a hotel
apartment investment can be structured as a limited partnership, direct partial ownership, corporate bond or membership of
a company limited by guarantee. Each of these structures may provide different security and offer different returns, despite
the underlying asset being exactly the same. According to experts like dlapiperrealworld.com, individuals, companies or
other organizations can invest in real estate in Zimbabwe through almost any type of vehicle. This includes investment
through companies, partnerships, unit trusts, real estate investment trusts (REITs) and pension schemes as well as direct
investment by individuals gain big. However, the choice of structure and choice of vehicle will have
significant tax and other consequences. The possibility to invest in in property collectively is also
seen.

According to worldbusinessculture.com, Zimbabwe’s company laws allow for establishing of

different types of commercial entities. Where a foreign investor does not seek to take up
equity in a local company, they have the option to enter into joint ventures with locals. For
projects in key sectors such as energy, these may be granted ‘National Project Status’, en-
titling the investor to a number of tax and fiscal incentives. It is also permissible for investors
to enter into partnership with Government through Public Private Partnerships (‘PPP’s),
through the recently enacted Joint Ventures Act [Chapter 22:22].Foreign investors are also
encouraged to obtain a Zimbabwe Investment License which in effect legitimises its opera-
tions in Zimbabwe. Licensed investors are accorded the full protection of Zimbabwean laws
in the event of investment dispute, and further, they may take advantage of any applicable Bi-
lateral Investment Protection treaties of their respective countries. Holders of investment li-
censes are also able to repatriate their initial capital investment and are entitled to remit 100%
of their dividend out of the country as well as being eligible to obtain investor residence per-
mits for its shareholders. Where an investor is seeking to take up equity in a local company,
they must comply with the provisions of the Indigenisation and Economic Empowerment
Act [Chapter 14:33], which endeavours to promote local participation in the economy
through encouragement of shareholding in local companies by ‘indigenous Zimbabweans’.
The thresholds for such desired participation are on a sector by sector basis. Zimbabwe al-
lows for the repatriation of 100% of capital invested plus any dividends earned.The primary
risk faced by foreign investors wishing to repatriate profits accrued from investments in Zim-
babwe stems from a failure by foreign investors to repatriate said profits in accordance and
conformity with Zimbabwe’s exchange control laws.

Here is a brief outline of some of the structures that may be used:

Direct ownership
This is where the investor owns the asset directly.  The most common form is freehold or leasehold property but it can
include growing timber or other physical assets.

Direct ownership does not have to be the whole of the asset and can just be part ownership (sometimes referred to as
fractional ownership). This is where say each investor owns one small part of a piece of land or hotel room, however
depending on how this is done the investment may be a collective investment scheme.

Property syndicate
This is where investors join together to invest in a property or properties.  Here, either all of the investors are registered as
joint owners of the property or one party is the legal owner with each of the investors in the syndicate having a beneficial
interest.  In both cases the income, expenditure and any capital gain will be split among the investors in accordance with the
syndicate agreement or trust deed.  Similarly the agreement will set out the decision making powers and control each
investor has.

Limited partnership (LP)

This is a form of closed ended collective investment where the investors enter into a partnership to join together to hold an
investment or a portfolio of investments. Under this structure each investor is a limited partner which gives them limited
liability. However, there has to be a general partner who will not have the limited liability protection but will have all the
decision making powers.

Investment is typically made by way of a nominal capital contribution to the partnership, with the balance of the investment
made by way of an interest free loan. On maturity, the proceeds of the investment are used to repay the loan and any
remaining balance is credited to each partner’s capital account (pro rata to their investment) for distribution.

Limited liability partnership (LLP)

This is similar to a limited partnership but for LLPs all partners have limited liability.  For LLPs the decision making is made
by designated members who act like company directors.

Intended as a corporate structure for professionals (lawyers, accountants etc.) this structure has been limited by HMRC as
an investment structure: specifically, where an LLP holds property as an investment, then the income and gains are not
exempt from tax when held by a pension scheme.

Unit trust – including exempt property unit trust (EPUT)

Unit trusts are a collective investment structure where investors receive units (at the prevailing unit price) representing their
investment in the fund.  The amount of income and capital due to investors is based on their number of units held.

Unit trusts can either be authorised or unauthorised.  Authorised unit trusts are regulated funds, offer investors protection
under the Financial Services Compensation Scheme (FSCS), are open ended and are required to provide an element of
liquidity to investors. Unauthorised unit trusts are not covered by the FSCS and will often be closed ended with limited
liquidity.

Unauthorised unit trusts are often used to invest in property or limited partnerships, particularly for pension schemes or other
tax exempt entities.  These are referred to as exempt property unit trusts or EPUTs.
Open ended investment company (OEIC) or similar
These are similar to unit trusts but are set up as companies. Investors purchase shares, at the prevailing share price, and
the company uses the proceeds to invest in accordance with its objectives and strategy. The amount of income and capital
due to investors is based on the number of shares held.

To meet the FCA definition of an OEIC, the fund must be a body corporate, risk must be spread for investors across multiple
assets and investors must be able to have a reasonable expectation of being able to redeem their shares within a
reasonable amount of time.

Like unit trusts these can either be regulated or unregulated. If a fund is regulated by the FCA (or recognised by the FCA if it
is located overseas) then it will offer investors protection under the Financial Services Compensation Scheme (FSCS) and
be required to provide an element of liquidity to investors.

OEICs are often incorporated in tax exempt jurisdictions, so that investors will only pay tax on the income and capital that
they actually receive.

Investment trust
Investment trusts are a type of collective investment set up as closed ended public limited companies whose shares are
traded on a recognised market. Standard investment trusts invest in the shares of other companies.  There are also Real
Estate Investment Trusts (REITs) that invest in property.

Public company
Investors will invest in the ordinary shares of a public company.  These are generally freely traded but unless the shares are
regularly traded via a recognised market there may not be a willing purchaser.

The company will often be a trading company but it could be an investment trust or other investment vehicle that does not
meet the definition of an OEIC

Private company
Investors will generally invest in the ordinary shares of a private company.  Unlike public company shares these are not
easy to sell especially as there may be restrictions set out in the company’s articles of association.

The company may be a trading company or it could be an investment vehicle that does not meet the definition of an OEIC.

Corporate bond
This is where investors lend money to a company in return for a defined return over a set term. The return is often an
interest return of a set percentage plus return of capital at the end of the term.  However this is not always the case as the
return may be directly linked to underlying assets other than the return of the capital invested.

There will often be an element of security for investors in the form of a debenture or other security over one or more of the
assets of the company.

Unsecured loan
This is where investors make a loan to a company in return for a defined return over a set term. Like corporate bonds the
return is often a set interest return (either payable during the term or at the end) plus return of capital at the end of the term. 
However this is not always the case as the return may be directly linked to underlying assets other than the return of the
capital invested.

The income and return of capital is dependent on the ability of the company to meet its liabilities after all secured debts have
been met.

Secured loan
This is just like an unsecured loan except that the loan is secured against one or more of the assets of the company.
Protected cell company (PCC) or segregated portfolio company (SPC)
This is where a company is able to create ‘cells’ (segregated portfolios) each being distinct from each other. This means that
within one company structure, separate cells can own different assets or properties and each is ring-fenced from the other
(including income, expenses and liabilities).

The investor’s share is represented by shares in the PCC or SPC but attributed to a particular cell or portfolio representing
the asset they are investing in. Typically PCCs and SPCs are established and based outside the UK.

Limited liability Company (LLC)

This is a form of private company, normally set up in the United States of America.

Life assurance bond

This is a life insurance policy taken out by investors for the purposes of investment.  These will often be single premium
policies and are often unitised.  These are often used for tax planning purposes and can be either be onshore or offshore
depending on the needs or intentions of the investor.

2.8. Importance of the subject

The research subject is magnificent for it shall be a tool for building knowledge and facilitating learning in academics.
There has been a detailed analysis over the subject and the subject covered quite a number of issues.
As it is a means to understand quite a number of issues within the subject and increase public awareness. The researcher
have made efforts to explain and clarify all related issues. The research shall help individuals, firms and governments within
the same business environment to succeed. By going through various theories the research shall allow readers to disprove
lies and support truths. By bring new ideas and practice from developed world. It provides nourishment and exercise for the
mind. The research shall be a means to find, gauge, and seize opportunities. Above all the research shall promotes a love of
and confidence in reading, writing, analyzing, and sharing valuable information. The subject is an incorporation of research
variable that make up the subject from previous related researches, hence more informative.

2.9. Knowledge gap

The prediction of the CAPM that the market risk premium is a significant explanatory variable in the determination of the
asset risk premium is rejected, by many researchers such as French, 1992; and Davis, 1994. To a number of factors, such
as incomplete information available in the markets, investing in individual stocks rather than portfolios, and undiversified
portfolios held by investors over short observation periods, are also number of factors that cause the rejection of the
standard CAPM as a model to explain the risk-return trade-off. Other researchers, suggested that Fama and French (2004)
emphasise that there is little support for the theory’s basic hypothesis that higher risk (beta) is associated with higher
returns. These issues leave a knowledge research gap for researchers. According to Piotr Fiszeder (2020), GARCH models
assume deterministic volatility based on past returns and conditional variances. In reality it is not true. Besides they are
mainly based on closing prices and do not include prices during the day. Read about the range-based volatility models
which are better and do not require additional intraday data. Volatility by their very nature is unpredictable. Perhaps a more
manageable task is scenario building rather forecasting the path of the volatility, hung Tin Fah (2020). An underlying
probability distribution, can be a limitation of any regression model including garch, as there can be plenty of garch models
selecting the appropriate model can also create problems, Srikanth Potharia (2020). These issues leave a knowledge
research gap for researcher.Other researchers assume that the model’s positive and negative shocks have the same effects
on volatility. In practice, it is well known that asset prices respond differently to positive and negative shocks. ARCH model is
rather restrictive. Volatility persists for relatively short amount of times unless p is large. These issues leave a knowledge
research gap for researcher. In Zimbabwe the business environment characterised by high interest rate, low profits margins,
high cost living, high cost of production, low foreign exchange rate and very high unemployment at the same time, an
element of unknown phenomena.This also leave a knowledge research gap for researcher.

2.10. LIMITATIONS
Lack of Information
Novice investors, who can often be tempted to pull out of the market altogether and wait on the sidelines until it seems safe
to dive back in reduce information availability.
Trying to time the market is extremely difficult. There is need to maintain a long-term horizon and ignore the short-term
fluctuations. Volatility can also spike whenever fear or uncertainty in the market rises.

2.10.1. Delays
Which delays in execution may be caused volatile markets are associated with high volumes of trading. Investors should ask
firms to explain how market makers handle order executions when the market is volatile. Prices that are significantly
different from the market price quoted at the time the order was entered these high volumes may also cause executions to
occur at. With the proliferation of online trading, we have come to expect quick executions at prices at or near the quotes
displayed on internet enabled devices.
Digital mayhem
Arise when difficulty in executing trades is encountered because of the limitations of a system's capacity. In addition, if you
are trading online, due to high levels of Internet traffic there may difficulty accessing your account. alternatives like phone
trades or talking to a broker over the phone to initiate an order are offered most online trading firms.

Incorrect quotes
Between the quote you receive and the price at which your trade is executed, there can be significant price discrepancies. It
should be remembered that in a volatile market environment, even real time quotes (RTQs)may be far behind what is
currently happening in the market. In addition, affecting the likelihood of a quoted price being available, the number of
shares available at a certain price known as the size of a quote may change rapidly.

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