The Determinant of Foreign Exchange Rate Volatility on the Financial Performance of Private Commercial Banks in Ethiopia
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Date
2024-01-10
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AAU
Abstract
The abstract discusses the findings of a study conducted on the determinant of foreign exchange rates
on the financial performance of private commercial banks in Ethiopia. The study reveals a significant
negative relationship between foreign exchange rates and the financial performance of these banks.
This highlights the importance of effectively managing foreign exchange risks for banks operating in
Ethiopia. The abstract also suggests a recommendation to increase exports and foreign direct
investment in order to enhance foreign currency inflows. By doing so, the study suggests that the
impact of fluctuations in foreign exchange rates on banks' profitability could be reduced. This
recommendation aligns with the goal of improving the overall financial performance of private
commercial banks in Ethiopia. Another interesting finding of the study is a positive and significant
relationship between bank size and financial performance. This implies that larger banks may have
better risk management capabilities and are more capable of capitalizing on opportunities compared
to smaller banks. However, it is important to note that this relationship may not hold true universally,
as there are various factors that can influence a bank's financial performance. Generally, the study
reveals a significant and negative relationship between interest rate spreads and financial
performance. This finding is unexpected because wider interest rate spreads would generally be
expected to benefit banks. Further exploration is needed to understand why this relationship does not
appear to hold true in the context of the study.In conclusion, the recommendations provided by the
study are considered sound and have the potential to enhance the financial performance of private
commercial banks in Ethiopia. It would be interesting to observe if these recommendations are
implemented and whether they yield positive outcomes for the banking sector in the country.
Continued research and analysis in this area could provide further insights into the dynamics of the
Ethiopian banking