Foreign Currency Exchange Risk Management Practices Among Firms Listed in The Nairobi Stock Exchange
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Date
2011-05
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Daystar University, School of Business and Economics
Abstract
Foreign exchange risk can be defined as the risk that the domestic currency value of cash flows, denominated in foreign currency for instance dollars, may change because of the variation in the foreign exchange rate. Kenya has a managed float exchange rate regime. Firms in the Nairobi Stock Exchange (NSE) are affected by fluctuations in the foreign exchange market. This research was carried out to establish the success of companies in the NSE in spite of the volatile foreign exchange market. The purpose of this study was to determine the foreign exchange risk management practices among firms listed in the NSE. The study found out that the respondent firms that dealt with forex bureaus were 60%. In addition, 70% of the respondent firms had a risk manger. In these modern times, foreign exchange risk is inevitable if a firm is involved in exports and imports. Furthermore, 70% of the respondent firms felt that indeed foreign exchange risk fluctuations created uncertainty in future projects and cash flows. Additionally, 62% of the respondent firms preferred the use of forward contracts exclusively. This study established that some firms listed on the NSE had incorporated hedging instruments as a tool of financial management and the level of success achieved therein was tremendous. However, prudence is required in the selection of derivatives, but in most cases success in loss prevention was almost guaranteed. The area of derivatives is relatively new in Kenya and hence, the findings could be beneficial to firms operating in this country.
Description
MASTER OF BUSINESS ADMINISTRATION in Finance
Keywords
Central Bank of Kenya, Capital Markets Authority, Gross Domestic Product, Kenya Commercial Bank Limited
Citation
Ombengi, M. J. (2011). Foreign Currency Exchange Risk Management Practices Among Firms Listed in The Nairobi Stock Exchange. Daystar University, School of Business and Economics