The relationship between foreign exchange rates and interest rates in Kenya
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Date
2015-06Author
Kiruga, Abraham M
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The study sought to understand the relationship of Foreign Exchange Rates on Interest
rates in Kenya. The descriptive research design was used. It was a case study of all the
Foreign Exchange Rates, Interest Rates, Inflation Rates and Gross domestic Product in
Kenya. Central Bank of Kenya (CBK) was the source of information in the pursuit to
establish the relationship of foreign Exchange rates on interest Rates in Kenya. The study
used monthly average foreign exchange rates, monthly average interest rates. Monthly
average inflation rates and Gross domestic product from 2010 to 2014.Multiple linear
regression was used to model the relationship between the three explanatory variables
and a response variable was used by fitting a linear equation to the observed data.
Multiple regression analysis was also used to assess whether correlation exist .The study
found that 42.3% of the variation in the dependent variable can be explain by the
independent variables, interest rates, inflation rates and GDP,while 57.7% can be explain
by other factors outside the model. As a result the research found that there was a positive
linear relationship between foreign exchange rates, interest rates and inflation. However
there was a negative linear relationship between foreign exchange rates and Gross
domestic products (GDP). The study concluded that there was a positive relationship
between foreign exchange rates and interest rates in Kenya but not significant. The study
recommends that more research be carried out to determine the effect of other factors line
relative employment, taxation policies, political situation and market adjustment on how
they affect the foreign exchange rates.
Publisher
University of Nairobi