|dc.description.abstract||This study sought to determine the extent of use of financial derivatives among commercial banks in Kenya. The research methodology used was a Correlation design and the population of study was Commercial Banks in Kenya listed at the NSE for 2006 to 2010. Secondary data collected was edited for accuracy, uniformity, consistency and completeness and arranged to enable coding and tabulation for final analysis. The study also used multiple linear regressions to analyze the data.
The study found out that a there is indeed a positive relationship between financial derivatives trading and financial performance. In addition, there is also a positive relationship between Return on Assets, Return on Equity, profitability plus other variables as discussed and market share, market price to book value, growth in assets, leverage and dummy. Various variables were used to explain derivatives in use by commercial banks namely profitability, return on assets, return on equity, loan loss allowance and other variables. ROE, ROA, profitability and growth in assets was the main variable explaining the derivatives in use by commercial banks. Capital to total unweighted risk for assets was the least explanatory variable since the relationship with financial performance was weak. As a result, it was clear that most banks balance sheets contained a significant level of derivatives. The study recommends that another research be done once all the aspects of derivative trading by the banks so that better results can be obtained. This study covers a shorter period which may be giving different results like if for instance a broader period of ten or more years was adopted. The study further recommends that broader areas of study and a bigger population be covered so that bigger and better results can be obtained on other variables that can explain whether financial derivative use has a positive effect on the financial performance. This study was only limited to 10 banks listed NSE.||en