The study will use a questionnaire to gather information from the listed

The study will use a questionnaire to gather

This preview shows page 10 - 14 out of 27 pages.

The study will use a questionnaire to gather information from the listed companies and stock brokers participating in the Nairobi Securities Exchange to establish in their opinion factors that influences the development of derivatives markets at NSE. The study will focus on listed public companies which have been approved by Nairobi Securities Exchange in Kenya to trade on derivatives and stock brokers licensed by Capital Markets Authority (CMA). 1.6 Limitations of the study. 10
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Due to limited financial resources available to the researcher, data collection will be limited to the Nairobi Stock Exchange, stock brokerage firms and Capital Market Authority. The findings will be generalized to represent the entire possible participants view in terms of derivatives market since the CMA are both the regulators and developers of the capital markets while the NSE brokerage firms act on behalf of investors and thus they can relay the fears and concerns of all participants. 11
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1.9 Operational definition of terms 12 Financial Market Market place used for the trade of securities that include equities, stocks, bonds, currencies and derivatives (Morgan, 2013). Derivatives A derivative is a financial instrument whose value is based on, or "derived" from an underlying asset a traditional security i.e. stock or bond, an asset e.g. commodity, or a market index. (Hervey, 2011) Financial derivatives as a financial instrument that changes in value based on fluctuations of underlying variables. Simple financial derivatives are futures, forwards, options, and swaps. However, over time, financial derivatives cover everything from stock market index moves, consumer price index changes, and even weather conditions (Harvey, 2011). Over the Counter Derivatives These are contracts, whether forward contracts, futures, or options which are privately negotiated between two counterparties. The terms of the contracts are customized to suit the parties to the trade (Mervyn, 2010). Derivative exchange Is a market where individuals trade standardized that have been defined by the exchange. Hedge Is a risk management strategy that is used in alleviating loss from fluctuation in prices of commodities, currencies or securities. Exchange traded derivatives These are contracts traded over a futures contract. Two important points with exchange traded contract that they tend to be liquid and there is no counterparty risk. They are based on equities, bonds and short-term interest rates (Mervyn, 2010) Equity Index Futures are derivatives that give investors exposure to price movement on an underlying index. Market participants can profit from the price movement of a basket of equities without trading constituents. (NSE) Single Stock Futures are derivative instruments that give investors exposure to price movements on an underlying stock. Parties agree to exchange specified number of stocks in a company for a price agreed today (The futures Price).
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CHAPTER TWO LITERATURE REVIEW 2.1 Introduction This chapter presents a review of the literature on financial derivatives and the theoretical factors necessary for the development of financial derivatives markets. The chapter is
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