Effects of Foreign Exchange Rate Determinants on the Profitability of Forex Bureaus in Kenya

Abstract

The aim of this study was to establish the effects of foreign exchange rate determinants on the profitability of forex bureaus. The exchange rates in Kenya have been fluctuating over the last few years with a rising trend. According to data from the Central Bank of Kenya, the exchange rate for US dollar was 79.4 in 2002, 76.5 in 2004, 69.9 in 2006, 78.0 in 2008,80.6 in 2010 and 86.6 in 2012. This shows a weakening shilling fr01112002 to 2012 and shows that the exchange rate has fluctuated over the same period. These fluctuations may be caused by a number of factors such as interest rates, inflation rates, terms of trade and public debt. This study adopted a descriptive design and secondary data was used. The results showed that external debt had positive and significant effects on the profitability of forex bureaus. Interest rates, inflation rates and public debt had a negative and significant effect on the profitability of forex bureaus. The study concluded that the higher the import-export ratio the higher the profitability of forex bureaus. It further concluded that the higher the inflation rate, interest rate and public debt the lower the profitability of forex bureaus.