Effect of fluctuation in foreign currency exchange rates on financial performance of five star hotels in Nairobi
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Date
2016Author
Kariuki, Belinda W
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
For the organizations to remain competitive and thrive, they are necessitated to evaluate
their external factors, which include foreign exchange market variability. Fluctuations in
the exchange rates may impact on the external operations of a country, mainly through
their impact on foreign trade transactions. Failure of organizations to manage their
foreign exchange exposure will have negative impact on financial performance due to
foreign exchange losses and gains. The study objective was to determine the effect of
fluctuation in foreign exchange currency rates on the financial performance of hotels in
Nairobi. This study adopted the descriptive research design. The target population was all
the five star hotels operating in Nairobi Kenya. Due to the population being small, a
census sampling approach was employed and all the ten five star hotels in Nairobi studied
as per Tourism Regulatory Authority classification. The study used secondary data.
Secondary data was obtained from the monthly management reports of the hotels which
was analyzed on quarterly basis for the period between 2012 and 2016. Data obtained
related to financial performance of five star hotels as measured by return on assets. Data
relating to exchange rates, economic growth and information was obtained from Central
Bank of Kenya. The study used quantitative data analysis techniques where Statistical
Package for Social Sciences version 23 was used to analyze data. Test of significance of
the results was done using Analysis of Variance. The findings obtained showed that
Exchange Rate Fluctuations had a significant positive impact on the performance. Thus,
depreciation of Kenya Shilling against the USD will lead to increased hotel financial
performance. Inflation had a negative relationship on the financial performance of five
star hotels. GDP on the other hand had a positive relationship. An improvement in the
GDP translates to an improvement in other economy sectors. The study concluded that
increased depreciation of Kenya shilling against the USD (increased exchange rate
fluctuation) will cause an increase in the performance. This could be due to the hotels
receiving much of revenues in USD. Further depreciating local currency improves
exports and makes imports expensive. However, macrocosmic theory requires
determination of optimal value for a currency and a stable exchange rate environment.
The study therefore recommended that Central Bank of Kenya to come up with policies
that will ensure stable exchange rate environment. Further studies were recommended to
be done on other sectors and not entirely the hotel sector for instance firms in energy,
manufacturing, agriculture, tourism and other sectors. This would provide a wide pool of
research findings that can be compared across the business fraternity for optimal policy
formulation. Future researchers can also undertake to ascertain the effectiveness of
hedging strategies for instance usage of forwards contracts in reducing foreign exchange
risks by the hotels
Publisher
University of Nairobi
Rights
CC0 1.0 UniversalUsage Rights
http://creativecommons.org/publicdomain/zero/1.0/Collections
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