The effect of foreign Exchange rates on the performance of the Nairobi Securities Exchange

Abstract

The changes in foreign exchange rates have diverse effect across the economic spectrum in any country. The sectoral and economy wide effects of foreign exchange rates may ultimately be reflected in the stock prices. The objective of this study was to examine the effect of foreign exchange rates on performance of NSE over the period January 2011 to December 2013.The study used a multiple regression model of NSE 20share index dependent on three variables; foreign exchange rate, inflation and interest rate. The main source of data was NSE and the Central Bank of Kenya statistics. The regression results show that foreign exchange rates, inflation and interest rates explain 72.9% changes in stock prices. Foreign exchange rate has insignificant relationship. So it does not have a significant effect on the performance of the NSE.