The effect of foreign exchange risk management practices on financial performance of private commercial banks in Ethiopia
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Date
2019-06
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Addis Ababa University
Abstract
Exchange rate is one of the macroeconomic variables that could influence banks profitability; it
may affect directly or indirectly. Foreign exchange risk arises when a bank holds asset or
liability in foreign currencies and impacts the earnings and capital of banks due to fluctuations
in the exchange rates. The objective of the study was to examine the effect of foreign exchange
risk management practice adopted by private commercial banks in Ethiopia on their financial
performance. An explanatory research design was used for the study, with the target population
of all the 16 private commercial banks in Ethiopia. The study used both primary and secondary
source of data for the analysis. The primary data was collected by use of questionnaires and five
point likert scales was used. The secondary data was collected by use of published reports as
audited financial statements of private commercial banks. For this study there are four
independent variables: FX policies and procedures, management information system, internal
control system, the role of top management and uses financial performance (ROA) as a
dependent variable. The researcher employed research analysis tool STATA. Regression analysis
was used in the study and the results of the study were presented using tables and graphs. The
research result found FX policies and procedures; internal control system and the role of top
management have positive significant effect on financial performance of private commercial
banks whereas, management information system was found to have positive but statistically
insignificant effect on financial performance of private commercial banks. The study
recommended private commercial banks to have continuous review of foreign exchange risk
management practice they adopt and should give more attention to risk management in order to
derive greater benefit from their risk management efforts.
Description
A thesis submitted in partial fulfillment of the requirement for the degree of
Masters of Business Administration in Finance
Keywords
Bank, Ethiopia, Foreign exchange, Risk management