| dc.description.abstract | Exchange rate movements have been a big concern for investors, analyst, managers and
shareholders in commercial banks. However, little is known, at least in Kenya, of how
foreign exchange trading influences commercial banks' financial performance and the
direction of the relationship. The objective of the study was to establish the relationship
between Foreign exchange trading and financial performance of commercial banks in
Kenya. The study adopted a survey research design where all 42 commercial banks were
the focus of the study. Data was collected from secondary sources: annual financial
reports of commercial banks and foreign trading data (currency forwards and swaps, and
spot trading) reported to CBK. Pearson correlation, descriptive statistics and multiple
linear regression analysis were used. The study established that from the multiple
regression analysis, the coefficients for spot trading was 13.491 (p<.OO1), currency
forwards 3.113 (p = .057) and currency swaps 4.820 (p = .095). The study concludes that:
currency swaps and forwards are negatively related with ROA while currency spot is
positively related with financial performance. Thus, currency swaps, forwards and spots
are significantly related with commercial banks' financial performance. From the
determination coefficients, it can be noted that there is a strong relationship between
dependent and independent variables given an R2 values of 0.856 and adjusted to 0.80 I.
This shows that the independent variables (spot trading, currency forwards, and currency
swaps) accounts for 80.1% of the variations in profitability as measured by ROA. The
study recommends that commercial banks foreign trading variables currency options,
currency forwards, and spot trading are very crucial in determining financial performance
of commercial banks in Kenya, however, efforts should be concentrated on spot trading
as it maximizes returns. | en_US |
