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Foreign exchange exposure has lately been a hot topic since adoption of floating foreign
exchange rate consequential from abolishment of the fixed exchange rate system of
Bretton Woods in 1970’s. Companies search for suitable hedging techniques to
minimize or eliminate the foreign exchange exposure to the institutions in order to
improve the financial performance. Therefore, this study aimed at assessing the
effectiveness of foreign exchange exposure on improving firms’ financial performance e
to the financial institutions operating in Zanzibar.
The research methodology used was survey research approach. A sample size of 50
respondents from 10 financial institutions, the methods of data collection involved both
primary and secondary sources. The Statistical Package for Social Sciences (SPSS)
software and Microsoft Excel program (spread sheet) were used to analyze the data
where simple frequencies and percentages on Tables and figures were created to help the
presentation of the findings.
The main findings indicate that there is inverse relationship of foreign exchange costs
and payable to the net income and direct relationship to the net loss of the financial
institutions operating in Zanzibar and then the study found that there is direct
relationship to the net income and inverse relationship to the net loss of the financial
institutions operating in Zanzibar, therefore the study concludes that the flexible of
foreign exchange rate has an effect on foreign exchange costs and payables and foreign
exchange revenue and receivable to the net income of the financial institutions operating
in Zanzibar.
In light of the findings, it was recommended that, financial institutions should review
their foreign exchange risk managing policies and employ suitable hedging techniques in
order to either minimize or eliminate the effect of the foreign exchange exposure on
their financial institutions. |
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