The Relationship Between Financial Performance For Multinational Corporations In Kenya And Exchange Rates Volatility

Abstract

Exchange rate is a vital mieroeconomic variable and backbone of international Trade. A variation of exchange rate plays an important role in determination of balance of trade. The exchange rate regime determines the ability of the economy to effectively respond and adjust to exogenous shocks. Besides the exchange rate movement influence exports and imports of goods and services which are key macroeconomic variable for these reasons it is necessary to have an appropriate model of the exchange rate that reflect the underlying economic factors. Exchange rate which is one of the variables that affect the profitability of a firm especially the ones that deal with foreign trade, if not well managed can render a firm to major shocks of profit deterioration. The objective of this study was to establish the relationship between financial performance for multinational corporations in Kenya and exchange rates volatility. The researcher used analytical research design in collecting the data from respondents. The population for this study included all MNCs quoted on the NSE by December 2010. The MNCs listed on the NSE were chosen upon because of the case availability of data on their performance. From the NSE handbook manual, there were 16 MNCs listed on the Nairobi Stock Exchange. The study used secondary data for five years starting from the year 2006 to 2010. The data collected was analyzed by use of Microsoft Excel and Statistical Package for Social Sciences (SPSS) Version 17. The study found out that, there were several factors influencing the financial performance of MNCs listed in the NSE, which are Sterling Pound Exchange Rate, United States Dollar Exchange Rate, Euro Exchange Rate and Japanese Yen Exchange Rate. They either influenced it positively or negatively. 1'he study concludes that Sterling Pound Exchange Rate, United States Dollar Exchange Rate. Euro Exchange Rate and Japanese Yen Exchange Rate influence the financial performance exchange rate. The study deduced that leverage negatively influenced the financial performance exchange rates. The study also concluded that Euro Exchange Rate positively influences the financial performance. The study also revealed that Japanese Yen Exchange Rate is positively related to the financial performance. Since the study established that Sterling Pound Exchange Rate have a significant influence on the financial performance, the managers of the companies should concentrate their efforts towards allocating more funds to buying and selling Sterling Found. This approach means making decisions and means taking control of a large risk area that affects a corporation. The study established that firms' decision making could impact on financial performance because it takes control of a large risk area that affects a corporation.