The effects and extent of foreign exchange risk on project Management: the case of International Livestock Research Institute (ILRI)

Abstract

The principal focus of this study was to establish the determinants of exposure to foreign exchange rate risk on projects funded through ILRI, explore the effects of exchange rate fluctuations in the medium term period of a project in terms of project timing, scope and quality and lastly, to establish the effect of exchange rate fluctuation on the operations of ILRl. The study period was 2000 to 2005 The study found out that the independent variables could explain 81.2 % of the exposure to foreign exchange rate risk on projects funded through ILRI, meaning that 18.8 % can be explained by other factors that affect foreign exchange rate risk but not related to these variables. The results also reveal that financing time lag accounted for 71.3 % of the total exposure with conversion exposure accounting for 55.3 % at US $and monetary monthly revaluation explaining 67.4% at of the total exposure if the variable were run individually. In total, the foreign exchange loss from financing lag time stood at $146,502.55, due to currency conversion there was an exchange loss of $279,706.11, with monetary revaluation contributing to $192,130.48 for the period under study. As the other factors other than specified variables continue to contribute to foreign exchange risk exposure facing ILRI, the results of the study reveal that financing time lag, expenditure currency conversion and monthly monetary revaluation will continue to bear challenge to management and project officers at ILRI. These groups will thus need to strategize on ways of developing contract arrangement that could among others, shift the burden of foreign exchange exposure to the project donors as well as exploring other avenues of transferring the risk in transactions to project agents to cover for expenditure currency conversion. VI