Effects of Foreign Exchange Rate Fluctuations on Export Earnings a Case Studies of Kenya Development Agency Factories

Abstract

Firms trading internationally have their performances immensely affected by the volatile exchange rates. This is due to the frequent exposure to unfavorable volatile exchange rates. This poses as a threat to the local forms to compete with other from different nations. sector on itself flaunts a 10% contribution to the GDP whereby 90% produced is exported. 60% of the accounts that export are owned and managed by KTDA. This is done through the auction process in Mombasa. The exports are exposed to volatile exchange rates on two levels. The initiallevel of exposure is at the time an export contract is entered for the sale of . The exchange rate may have changed due to the timing difference between the sale time contract and thewhen the payment is made for the sale by importer. The Second level is at the realization point of the sale to the local currency, Kenya shillings, from the foreign currency. The exchange rate figures may have also changed due to timing differences. The research aimed at ascertaining the effect of volatile exchange rate on the KDTA earnings on exports. The study utilized data on earnings when thecontract sale was closed between the importer and KTDA. For relational analysis of the variables like earnings of , the prevailing inflation and the exchange rate fluctuations, descriptive research suited the analysis. The data used was sourced fromKTDA. CBK and KNBS. A regression model was applied to set on the variables to ascertain the relation between the variables which reveal that there a 0.221 factor correlation between the earnings on and the exchange rate. The outcome of the results from the regression analysis signified that the model was statistically reliable for the prediction of the dependent variable. This is was with the support of the F significance of 0.003. The relationship between export earnings and exchange rates was positive while it is negative with monthly inflation. The results further gave an indication that there could be other factors not incorporated in the model since the constant derived displayed a negative value. The study therefore advocates for a wider scope of the other peripheral factor s that might have an effect on export earnings other than exchange rate s and the prevailing inflation The study also extends an urge the players of the exports industry like the policy makers to come up with tools and mechanisms to sustain the earnings for a period of high inflation and low exchange rates. This will mean favorable and stable earnings on the sector hence creating room for expansion to a wider markets and destinations.