Empirical Analysis of Entry in the Local Exchange Market: The Case of Pacific Bell*

South African investors have been precluded from investing in foreign securities by the Exchange Control Regulations of 1961. Furthermore, the monetary policy pursued by the authorities has resulted in an inefficient financial market. Investments on the capital market have not earned satisfactory real rates of return, and prices on the JSE appear to have been driven to artificial heights. The De Kock Commission of Inquiry has proposed several recommendations which will have far-reaching consequences for investors in South Africa. The proposal of market-related interest rates and the abolition of prescribed investments by institutional investors is likely to result in long-term securities earning substantially higher real rates of return. The relaxation of exchange control for both direct and portfolio investment is likely to stem the flow of funds into the JSE. Investment funds can be expected to flow between the JSE and the various foreign equity markets depending on the economic prospects in the different countries. The high foreign exchange cost and poor liquidity of the local exchange market has been an obstacle to investors in foreign securities. The creation of a larger and more efficient foreign exchange market is likely to facilitate international portfolio diversification in South Africa.

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Contagion in the Brazilian interbank currency exchange market: an empirical analysis

Estudos Econômicos (São Paulo) ◽

10.1590/s0101-41612006000200003 ◽

2006 ◽

Vol 36 (2) ◽

pp. 251-262 ◽

Cited By ~ 1

Author(s):

Maria Tannuri-Pianto

Keyword(s):

Empirical Analysis ◽

Presidential Elections ◽

Financial Institution ◽

Financial Contagion ◽

Exchange Market ◽

Domino Effect ◽

Exogenous Shock ◽

Initial Failure ◽

Currency Exchange ◽

Financial Losses

The risk of contagion is the possibility that the failure of a financial institution affected by an exogenous shock generates the failure of other institutions not initially affected by the shock. As pointed out by Upper and Worms (2002) and others, the domino effect in the payment system depends on the precise pattern of interbank linkages. This paper studies the occurrence of financial contagion after the exogenous failure of an institution authorized to operate in the Brazilian interbank currency market. The data contain information about all the actual transactions that occurred in this market from August 1st, 2000 to October 31st, 2002. The adopted methodology shows the occurrence of contagion propagation in several subsequent rounds after the initial failure. We quantify the number of institutions that breakdown and the financial losses of the market. There is a large increase in the number of failed institutions during the period of the presidential elections in 2002.

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