Effect of Foreign Exchange Exposures on Revenue Performance of Export Companies in Eldoret Town, Kenya

Abstract

Globally, there have been dramatic swings in foreign exchange exposures since 2013 as evidenced by Sterling Pound appreciation in 2015 and the value of the dollar soared between 2015 and 2016. Between 2014 and 2013, the nominal foreign exchange-exposures of Sterling Pound rose by 17%, with an associated loss in UK export price competitiveness with an appreciation of the real foreign exchange exposures of 23%.In Africa, the South African rand depreciated sharply against the U.S. dollar in the last four months of2016 by 42 percent between September and December after a steady decline earlier in the year; whereas in Kenya, the real effective foreign exchange exposures have been depreciating since 2013. Economic theory suggests that changes in the foreign exchange exposures can produce a shift in revenue performance, directly in the case of exporting and importing companies, many studies have generally found fair value earnings, resulting from recognizing unrealized holding gains and losses, and are more volatile than those computed under historical cost accounting by over 30%. Scholars argue that because this increased volatility is not reflective of the underlying economic volatility of banks operations, inefficient capital allocation decisions by investors will result, thus raising banks cost of capital. This has significant impacts for export firms. To address this the study conducted this research whose purpose was to assess the effect of foreign exchange exposures on firm's. revenue performance of export in Kenya. The study employed a correlational research design. The target population comprised of 7 Export firms in Eldoret with a total of 87 permanent employees working for this firms. The sample size consisted of 70 respondents. The study employed the use of simple random sampling to select the respondents to participate in the study based on their availability and their willingness to participate in the study. The research utilized survey questionnaires for primary data collection. The questionnaires were issued to the fmance staff of the selected firms. Validity was tested through expert opinion while reliability employ the test re-test method to ascertain questionnaire consistency. To supplement the primary data, secondary data through documentary reviews were also be sought from income statements. In analyzing data, both qualitative and quantitative data was collected. Quantitative data was analyzed using both descriptive and inferential. Descriptive included frequencies, percentages and means while the inferential included the use of the use of regression. The study fmdings indicated that there was a significant relationship between unrealized foreign exchange gain or loss and revenue performance of export firm (p=0.043). Therefore the hypotheses There is no significant relationship between influence of unrealized foreign exchange gain or loss influence and revenue performance of Export companies is rejected. The study findings indicated that there was a significant relationship between foreign exchanges on import costs and revenue performance of export firm (p=0.153). Therefore the hypotheses. There is no significant relationship between influence foreign exchanges on import costs and revenue performance of Export companies is accepted. The study fmdings indicated that there was a significant relationship between foreign exchanges on export costs and revenue performance of export firm (p=0.000). Therefore the hypotheses. There is no significant relationship between influence foreign exchanges on export costs and revenue performance of Export companies is rejected. The study concluded that foreign exchanges on import costs had the greatest effect on revenue performance of the export firms. The study recommended the management of risks associated with foreign exchange exposure including training employees and hedging among other practices'