The effects of exchange rate fluctuations on financial performance of forex bureaus in Nairobi.

Abstract

Forex bureaus operate in an environment with frequent fluctuations in the rate at which one currency is exchanged for the other. These exchanges of one currency for the other at fluctuating rates may provide opportunities of arbitration when shifts in exchange rate are favourable to forex bureaus. On the other hand, it is believed that exchange rate fluctuation increases risks to these entities and therefore incidental costs arising as a result means that financial performance is affected. This study focused on fluctuations of exchange rate and its effect on financial performance of forex bureaus in Nairobi. Secondary data was collected from the forex bureaus where necessary data was obtained from 48 forex bureaus from a target of 74 licensed bureaus. Descriptive research design was adopted by the study as it was found appropriate to answer the research question. The analysis of data was undertaken by the use of multiple regression analysis. Secondary data collected involved exchange rate fluctuations data for the period 2017-2019. Similarly data on financial performance (ROA) was collected for the study period, the year of licensing of the bureau, the total directors and the component that composed female directors and total assets of the forex bureau. The regression analysis undertaken indicated that the regression model was significant as the correlation between actual financial performance and financial performance as predicted by the model was 36.2%. The coefficient of determination was however low at 13.1% which suggest that the model could only predict changes of financial performance to the tune of only 13.1%. The F test statistics had a p value of less than 0.05 that led to a conclusion that there was statistically significant effect of foreign exchange rate fluctuations on financial performance of forex bureaus in Nairobi. The foreign exchange rate fluctuation had a negative correlation with financial performance.