The law governing securities in Tanzania is the Capital Markets and Securities Act 1994 (the Act).

The Act establishes the Capital Markets and Securities Authority. The Authority is a body corporate with perpetual succession. It has a common seal and is capable of suing and being sued, taking, purchasing or acquiring, holding, charging and disposing of both moveable and immoveable property, borrowing and lending money, and entering into contracts1. The term Money as used in everyday conversation can mean many things but to economists money has a very specific definition, for the purpose of avoiding confusion. Economists defined it as anything that is general accepted in payment for goods and services or in the repayment of debts2. Thus currency fit in the definition of money to includes coins, dollar, shillings etc. So when one talks of money talks of currency as well. As I have seen the term money it has got some problems on its meaning as even traveller cheques, saving deposits are as well considered to mean money, thats why even wealth, cheque, assets and income can as well referred to as money3. According to the capitalist economic theory, money is just medium of exchange, unit of account and store of value. This definition of money does not take into account the role of money as means of stimulation of economic activities and equivalent of labour and production4. In order to correctly understand the essence of money in whatever form despite that is acceptable in any economy, it is necessary to examine all functions carried out by it. Pursuant to the National Economic Model, money possesses the following basic characteristics5.

1 2

Section 6 the Capital Markets and Securities Act, 1994. T. Stridsman,Trading Systems and Money Management,22 3 Idem, 22 4 http:// www.nationaleconomymodel.com/haber.php? (Accessed on 11/11/2011. 5 http://www.bcb.gov.br/originmoney. (accessed on 9/11/2011).

In the economy, all goods and services are purchased with money. This reflects the function of money as medium of exchange. Money as medium of exchange, which in all market transaction in any economy in the form of currency or cheque acts as a medium of exchange, as it used to pay for goods and services6. The use of money was to promote economic efficiency by doing away with that old fashioned way (barter system) of spending a lot of time in exchange goods and services7, thus the need of money is so strong that almost every society, except the most primitive invents it. For instance from those old days when people used the barter system a farmer who wishes to exchange a sheep for furniture must find not only a furniture maker who happens to want a sheep, but also one who happens to want just the number of sheep that would make the barter satisfactory to both parties who wishes to take the sheep at the same date that the farmer wishes to have his furniture, and who is prepared to accept a mutual agreeable location of exchange, as the system proven failure as it usually involves a series of cumbersome transaction then the introduction of money as a medium of exchange which satisfies many8. Moreover, many of the goods are traded are indivisible, it will often be difficult to conclude bargains which fully satisfy both parties, thus the society overcomes this constraints by the invention of the medium of exchange, which every one in the society is prepared without quibble to accept as go-between in exchange which split exchange into two transactions- a sale and purchase where each of which could be separate in terms of person, amount, time and place. This does away completely the need for the double coincidence of wants9. Money also functions as a Measure of Value and a Unit of Account, it provide unit of account that it is used to measure value in the economy, thus one can measure the value of the
6 7

Idem, 23 Idem, 24 8 E. L. Furness, Money and Credit in Developing Africa, University of Strathclyde, London, 1975, 5. 9 Furness, supra note 6.

goods and services in terms of money10. Also function of money is to provide a community with a common unit in which value can be measured, compared and expressed, thus the society needs to be able to measure values in a common unit such as dollar, pound, shilling etc. When value expressed in money they are known as prices, thus money as a unit of account makes a price system possible11. Money also permits the fine comparison of costs, the making of detailed calculation and the maintenance of records and accounts; it thus provides the means by which the individual can determine the distribution of his purchases which will maximize his satisfaction by which the producer can judge the most economical combination of resources of production, and by which the government can assess and formulate an effective national development plan12. Furthermore money functions as a liquid store of value, the objective of saving money in the liberal economy is to receive interest on it. Thus as a store of value money promote the followings; withdrawal of money from production and thereby from real economy, monopolisation of capital, transfer of goods and services produced worldwide to global forces, increase in production costs, decrease in demand and reduction in workers wages of workers and decrease of labour productivity13. Because of the varied nature of production and human wants and needs, it is inevitable that transactors will have a wide range of difference in the choice of timing for disposal of their products in the market and for their acquisition of goods and services in exchange and the easier is for the transactions of disposal and acquisition to be separated in time the more will trade and exchange be facilitated and encouraged14. In barter economy the transactor can only delay getting what he needs by accepting in exchange for his product which he does not real want but which he holds until he
10 11

Stridsman, supra note 1 Furness, supra note 4. 12 Idem, 5. 13 http:// www.nationaleconomymodel.com/haber.php? (Accessed on 11/11/2011. 14 Furness, supra note 4.

is ready to barter for the thing he wishes to consume, alternative he can store his products if it is storable until the moment of barter is opportune, however the use of money greatly facilitates the separation of these transaction in time. A money balance is a stock of liquid claims to real wealth and as a liquid store values, money is essential to the functioning of an economy based on intricate specialisation and exchange due to the reasons that the decision to buy and sell are made separately as the choice for timing for purchase and sales frequently differs15. For instance W.T. Newlyn in his book titled The Theory of Money has also argued that money is the only assets whose use to finance payments does not necessarily affects markets for loans, that all other assets must first be converted into money before they can be used to settle debts. Rather than using money for spending today, you can store (save) it for use in the future. If what we use as money is going to serve as a store of value, this can further limit what can serve as money. For example, suppose your income was paid in apples, but you didnt want to spend all your income right away; you wanted to save some of it to spend later. Youre going to have some difficulty saving some of your apple income. The apples will eventually rot, and no one is going to want rotten apples. And you dont want this to happen to your money. You dont want it to lose its acceptability because you saved it. We want our money to enable us to save, that is, to postpone using some of our current income for use in the future. One of our goals in saving is usually to ensure that the value of our savings doesnt decrease over time. In fact, we usually hope that the value of our saved funds will increase16. Money as well function as a standard of deferred payments, in the sense that the use of money makes it possible for a person to defer his spending from the present to some future date, thus it enable people to make contracts for fixed period amounts money in the present

15

P.A, Popiel Financial Systems in Sub-Saharan Africa, A Comparative study. World Bank Discussion Papers, Africa Technical Department Series August 1994,8
16

http://www.moneyandyouth.cfee.org/.../moneyfunct.pdf.

for the future deliver of goods, if in a period of rising prices people loose confidence in the value of money thus they will cease to accept it as a standard of deferred payments 17. Money as a means of stimulation of economic activities such as labour and energy triggers the entire economic activity aimed at producing goods and services. That is, money is not a neutral in economics as suggested by some other economic schools. On the contrary, money serves as an instrument to reveal intentions in terms of production and consumption18. Money as an equivalent of labour and production, whereas in everyday life in the absence of money, it is impossible to satisfy even the simplest human needs in food, home, safety and health care, and it is also impossible to put into action human labour to develop country. Money is an equivalent of labour that is put into action, which produces goods and services. Money, by means of which the production is triggered, may not have the corresponding equivalent in the beginning19. However, in the process of production money is capable of creating its equivalent and even more. Therefore, the cost of money is incomparably lower than the value of goods and services created by the use of factors of production. Without financial system it is quite difficult and expensive to allocate resource and shift risks to its lowest level (low economic development). Financial system plays an important role in the economic development and it is divided into financial markets and institutions. The role of the financial system is to gather or pool money from people and businesses that have more than they need currently and transmit those funds to those who can use them for either consumption or investment. The larger the flow of funds and the more efficient their allocation is, the better the economic output and welfare of the economy and society.

17 18

Furness, supra note, 4, 8 http://www.gold-eagle.com/...03/helfield022803.html. 19 http:// www.nationaleconomymodel.com/haber.php.

Admittedly, there is no universally and unequivocally agreed on definition of what a financial system is. However, majority of scholars and practitioners have defined it as a collection of financial markets, financial intermediaries, laws, regulations and techniques through which fixed income securities, equities and other securities are packaged, traded and yields are determined20. On the other hand the term financial system can be referred to as the processes and procedures used by an organization's management to exercise financial control and accountability. These measures include recording, verification, and timely reporting of transactions that affect revenues, expenditures, assets, and liabilities21. Thus the financial market as we have seen it is complex, comprising many different types of sectors which are heavily regulated by the government and it therefore performs the following functions:The first and the foremost function which financial system perform is the channelization the savings of individuals and making it available for various borrowers which are the companies which take loan in order to increase the production of goods and services, which in turn increases the overall growth of the economy22. It is with the help of financial system that one can make payment whenever and wherever he or she wants with the help of cheques, credit card and debit card. In the absence of financial system one has to take cash wherever he or she goes which would have been impossible23.

20 21

F.S. Mashkin, An introduction to Financial Market and Institutions, East Carolina University,New York,8 http://www.businessdictionary.com/ 22 http://www.letslearnfinance.com/functions-of-financia. 23 Idem.

Financial system also provide an individual various options when it comes to protecting against various risks like risk arising from accidents, health related, etc through various life insurance options24. Financial system also makes sure that one can liquidate his or her savings whenever he or she wants it and therefore individuals can have both the things, which involve return on investments as well as comfort that they can liquidate their investments whenever they want 25. It also performs the allocation of capital by allowing funds to move from people who lack productive investment opportunities to people who have such opportunities26. Moreover the financial system which are well operating efficiently improve the economic welfare of everyone in the society as it directly improve the wellbeing of consumer by allowing them to time their purchase better27. All transactions whether they involve individual buying house or a big company coming with an initial public offer they are effected smoothly because of financial system28. Capital market refers to the market for long term financial assets having actual maturities of more than one year29. Capital market is simply any market where a government or a company (usually a corporation) can raise money (capital) to fund their operations and long term investment. Selling bonds and selling stock are two ways to generate capital30, Capital market performing an important service in the financial system. Capital markets is an integral component of the financial markets that provide avenues for raising long term financial resources and channel them to economic ventures thus availing
24 25

Idem. Idem. 26 Mashkin, supra note 18. 27 Ibid, 10. 28 A.Saunders, M.M.Cornett Financial Markets and Institutions, An introduction to the Risk Management Approach, McGraw-Hill/Irwin 2007,3
29 30

P.S. Rose, Financial Institutions, Library of Congress, 3rd ed, USA, 1998.115. http://www.cma.or.ke/index.php?option=com.

several economic benefits and potentials for economic development. In the process capital markets provide liquidity, price discovery, reduced inflation, reduced cost of financial transaction, transfer of risk and an alternative source of financing investments. The capital market is more closely connection to the savings or investments process which provide a bridge by which savings of surplus units may be transformed in the investment of deficit unit. Capital markets contribute to economic stability by matching savings and investments31. Capital markets have two inter-dependent segments; primary and secondary markets. Within the market economy, capital markets works as follows: by mobilising savings from idle agents and transfer to productive agents, provision of finance to companies, encouragement of broader ownership of productive assets and provision of facilities for competitive transfer (pricing) of capital resources. Financial market can be defined as a collection of markets that deal with all financial assets, including those which pay-off in short-term, usually less than one year (known as money markets) and those whose tenor/life is of a long-term nature (known as capital markets). Financial markets are therefore comprised of money market and capital markets32. Thus, financial markets are markets in which funds are transferred from people who have access of available funds to people who have a shortage and it includes bonds and stocks. The bonds and stocks are crucial to promoting greater economic efficiency by channelling funds from people who do not have to people who have33. With regards to financial market in any economy there are number of functions it performs as stated hereunder:-

31 32

Rose, supra note 26, 116. F.J. Fabozzi and F. Madighani., Capital Markets Institutions and Instruments, Upper saddle River, New Jersey,2009, 4 33 Idem, 5.

Firstly, Transfer of Funds, financial market perform an essential economic function of channelling funds from households, firms and government that have served surplus funds by spending less than their income to those that have a shortage of funds because they wish to spend more than their income34. Financial market also helps to transfer funds from a person who has no investment opportunities to one who has, thus by using this way it stands as an essential in promoting economic efficiency35. With the existence of financial market it helps people to borrow for a purpose other than increasing production in business, with it one can borrow for the purpose of even marring36. Financial market is essential for producing an efficient allocation of capital by means of using all devices used or employed to produce more wealth. In the primary financial markets, securities are sold by businesses and government entities that are raising money. Firms raising money for investment purposes must compete with other security issuers (public and private) for available money37. Since the investors who provide these funds are interested in earning the highest return for a given level of risk, they have an incentive to evaluate these different investment opportunities and choose the best investments. Through this process, they channel available investment funds in the economy to their highest and best possible uses38. Further, the financial markets directly improve the well being of consumers by allowing them to time their purchases better. It also functions as a means of providing funds to young

34

P. Howells, and K. Bain., Financial Markets and Institution,4th ed, Pearson Education Ltd, England,2004,18 35 Ibid, 19 36 Idem. 37 Ibid, 20 38 Idem.

people to buy what they need and eventually can afford without forcing them to wait until they have saved up the entire purchase price39, such as the money spent to advertise Moreover, financial market performs an economic function as it reduces the search and information costs of transacting, search costs represents explicit costs such as the money spent to advertise the desire to sell or purchase of financial assets and implicit costs such as the value of time spent in locating a counterparty40. The financial markets provide liquidity for sellers of securities in the secondary market. Liquidity is usually defined as the ease with which you can sell an asset on short notice without a loss in its value41. Financial markets facilitate pricing of various financial securities. Securities pricing is accomplished through the supply-demand forces in a potential market. Behind the supply and demand forces, however, individual investors make decisions about what they feel are the intrinsic values of different financial assets. Where the supply and demand curves meet the market arrives at an equilibrium price42. Thus, a financial system is an important part of the modern economy of any nation as it stands to regulates all major means of the economy.

39 40

Ibid,19. C, McIver, and G. Naylor., Marketing Financial Services, The Institute of Bankers, 10 Lombard Street, 1986, 10 41 uwf.edu/rconstand/FIN3244web/.../Intro%203.do. 42 Idem, 4.

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BIBLIOGRAPHY. Statutes. The Capital Markets and Securities Act, 1994. Books. Fabozzi, F.J., and Madighani, F.., Capital Markets Institutions and Instruments, Upper saddle River, New Jersey,2009. Furness, E. L., Money and Credit in Developing Africa, University of Strathclyde, London, 1975. Goacher, D., The Monetary and Financial System, 2nd edition, London: The Chartered Institute of Bankers, 1993. Mashkin, F.S., An introduction to Financial Market and Institutions, Scott, Foresman and Company, 2nd ed, East Carolina University,New York, 1989 McIver, C, and Naylor, G,. Marketing Financial Services, The Institute of Bankers, 10 Lombard Street, 1986. Popiel, P.A., Financial Systems in Sub-Saharan Africa, A Comparative study. World Bank Discussion Papers, Africa Technical Department Series August 1994. Rose, P.S., Financial Institutions, Library of Congress, 3rd edition, USA, 1998. Saunders, A, Cornett, M.M, Financial Markets and Institutions, an introduction to the Risk Management Approach McGraw-Hill/Irwin 2007. Stridsman, T., Trading Systems and Money Management, A Guide to Trading and Profit in Market, New York, 1989. Websites. http://www.cma.or.ke/index.php?option=com. http://www.gold-eagle.com/...03/helfield022803.html. http:// www.nationaleconomymodel.com/haber.php http://www.moneyandyouth.cfee.org/.../moneyfunct.pdf. http:// www.nationaleconomymodel.com/haber.php?. http://www.bcb.gov.br/originmoney

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