The Effect of Foreign Exchange Rates on the Financial Performance of Firms Listed at the Nairobi Securities Exchange

Abstract

This research will find out the foreign exchange rates impact on profits, formulating the problem statement of the impact that variations in the exchange rate has in the financial performance of the listed companies in the Nairobi Security Exchange for the period covering years 2002 to 2012. The research sought to answer whether foreign exchange rate risk effects on the listed companies in the Nairobi securities exchange. The research design was descriptive which involved the use of both qualitative and quantitative data. The sample size constituted of 46 firms except for financial and investment but the results of 41 firms were analysed after eliminating spoilt and inconsistent questionnaires. The research utilized questionnaires for data collection comprising of structured questions. Data was collected from primary and secondary sources. Primarysourcewas from senior managers in finance and internal audit through the use of questionnaires. The information was obtained for 10 years between the financial years (2002- 2012) while the secondary data was obtained from financial statements. This study employed multiple regressions to analyze the effect, and the Statistical Package for Social Sciences (SPSS) was also used. This generated descriptive statistics such as percentages, frequency distribution, measures of central tendency and graphical expressions. From the findings the study found that listed firms financial performance is affected by the foreign exchange rates movements. Use the income statement and the owner‘s equity account to record foreign exchange differences. The study further concluded that unrealized foreign

exchange gains/losses had an effect on the Net Income of listed companies as it was posted to either income statement or owners’ equity.