| dc.description.abstract | The objective of this study was to determine the effect of foreign exchange exposure on non funded income of commercial banks in Kenya. The research used a descriptive survey research design and data was analyzed using Statistical Package for Social Sciences (SPSS). The descriptive survey was ideal because it ensured thorough description of the situation ensuring least possible bias in data collection. The study made use of secondary data collected from annual reports submitted to the CBK for the target population comprised of all the commercial banks in Kenya. Summaries of data findings together with their possible interpretations were presented using tables, charts, correlations, standard deviations and regression. The study found out that mean of Forward Contracts is relatively high as compared to other variables while Currency Swaps had the highest standard deviation. Options had the highest positive correlation. Currency Swaps and forward contracts also had high and positive correlation with non funded income. This shows that currency swaps shows had the highest variability or high volatility (Risk) in the financial performance as measured by non funded income. This implies that the foreign trading variables currency options, Forward Contracts, and Options are very crucial in determining performance of commercial banks in Kenya. From the regression equation it was found that holding forward contracts, cross currency swaps and options to a constant zero, return on assets would be 1.952. A unit increase in forward contracts would lead to improvement on non funded income by 3.514 units. A unit increase in currency swaps would lead to improvement of non funded income by 5.828 units and a unit increase in options would lead to improvement on non funded income by 9.235 units. The study concluded that a unit increase in forward contracts, currency swaps and options would lead to improvement on non funded income. Overall options had the greatest effect on return on assets, followed by cross currency swaps then forward contracts. Therefore the study recommends that foreign exchange risk management should always be taken in to account to improve the banks non funded income and hence the performance of the banks. The commercial banks should engage in Forex trading where the returns are highly maximized since investments in capital projects involve huge investment capital. Furthermore the banks management should put structures in place so as to enhance returns on capital and assets and in turn maximize returns to the commercial banks. Policy makers should undertake to understand risk affecting the foreign exchange markets among commercial banks to improve capital investments to maximize returns of the banks hence overall performance | en_US |
