Operational Definition of Terms
increase in value
decrease in value
Exchange rate fluctuation-is the change in value of one currency against another currency due to various
Foreign exchange rate: Conversion ra
Statement of the Problem
A number of studies have been under taken establishing the relationship between the stock exchange in
the world and currency variations in specific countries. The vast majority of these studies have been
carried out in Asia, Europ
value of its foreign operations as well as a continuing change in the profitability of its foreign operations
reflected in successive income statements (Aggrawal et. al., 2010). For export reliant multinational firms,
appreciation of exchange rates would
Balance of Payments Theory of Exchange
It is also referred to as demand-supply theory of exchange. The theory stresses that the rate exchange
basically relates to the position of balance of payments of the country concerned. A favourable balance
Abiola, I. & Olausi, S. (2014), The impact of fluctuations in foreign exchangeon the commercial banks
performance in Nigeria, International Journal of Management and Sustainability, 2014, 3(5): 295306
Armendriz de Aghion, B. and J. Morduch (200
indicates that regulatory efficiency improves stock return aftershocks when fluctuations on foreign
2.1.1 Appreciation of Currency and Stock Returns
Fluctuations in foreign exchange maximizes firms risk adjusted rate of return by maintai
Consequently, the buying pressure created by the short sellers covering their positions will push the
share price upward.
Mugenda and Mugenda (2003), define a conceptual framework as a hypothesized model identifying the
Black, B. S., and Gilson, R. J. (1999). Does Venture Capital require an active Stock Market? Journal of
Corporate Finance. Winter Edition: 36-48.
Boahene, S. H. Dasah, J and Agyei S. K. (2012), Stock Trade Risk and profitability of selected banks in
market and stands ready to provide support to minimize the volatility of the exchange rate. (CBK 2015)
1.2 General Objective of the Study
The study seeks to ascertain the effect of the exchange rate fluctuation on the stock returns in Kenya.
and used in most heuristic studies to obtain a measure of reliability of a set of questioned items. The
internal consistency is the proportion of the test variance that can be attributed to a group of items,
(Cronbach 1951) which measure the reliability c
Marone, H. (2003). Small African Stock Markets-The Case of the Lusaka stock exchange. IMF Working
Morduch, J. (2014). The promise of Fluctuations in Foreign Exchange. Journal of economic literature, 37,
Musyoki, D and Kadubo, A.
explained by Quah, (2001) return formula looks at how much the value has increased (P1 - P0). The
denominator of the formula to calculate a stock's total return is the original price of the stock which is
used due to being the original amount invested.
Hosna, A., M. Bakaeva and J. Sun, (2009). Fluctuations in foreign exchangeand profitability in commercial
banks, master degree project No. 2009: 36, school of business, economics and law, University of
Ibtissem, B. and Bouri, A. (2013), Fluctu
Boahene, Dasah and Agyei (2012) used regression analysis to determine whether there was a significant
relationship between fluctuations in foreign exchange and stock performance of Ghanaian banks. They
found empirically that there is an effect of fluctuat
CHAPTER TWO: LITERATURE REVIEW
This chapter concentrates on reviewing the literature with a view of understanding what other
researchers have contributed and the extent of the findings towards fluctuation in foreign exchange and
Philip, D., (1994). Panacea to distress in banking, a paper presented at the UBA management retreat.
Wahome, M.R. (2007-2010). Impact of stock market development on economicgrowth: case study of
Nairobi stock exchange. (Doctoral Dissertation). University
According to the balance of payments theory, the demand for foreign exchange arises from the debit
items in the balance of payments, whereas the supply of foreign exchange arises from the credit items.
Since the theory assumes that the demand for and supp
away from trading in particular stocks. Even though economic theory suggests that a more stagnant
currency schedule would benefit stock traders and clients and potentially increase their re-investment
capacity, others believe that the silent risk imposed
2.3 Theoretical Framework
2.3.1 Exchange rate theories
Purchasing Power Parity as a Theory of Exchange Rate Determination
The PPP relationship becomes a theory of exchange rate determination by introducing assumptions
about the behavior of importers and e
Fedele, A. (2006), Joint Liability Lending in Microcredit Markets with Adverse Selection: a Survey, The
ICFAI Journal of Bank Management, 5 (2), pp. 55-63.
Field, E., &Pande, R. (2008). Repayment Frequency and Default in Fluctuations in Foreign Exchange:
Bs=regression coefficients (elasticity of Stock return with respect to exchange rate fluctuation indicators).
Y= Stock returns
=base of natural statistic error term
3.9 Ethical C
the content validity will be ascertained by supervisors; who will constantly check, evaluate and highlight
errors in this research.
3.7 Reliability of the Research Instrument
Reliability is a measure of the degree to which a research instrument yields con
was after independence in 1963 that the Government made efforts to promote growth of the capital
market by granting loans to indigenous Kenyans to buy shares in foreign owned entities, tightening of
taxation policies to reduce repatriation of funds by for
This chapter introduces the study concept. It focuses on study background, the statement
of the problem, the objectives, research questions, significance, limitations and scope of
Background of the Study
The concept of exchan
CHAPTER THREE: RESEARCH METHODOLOGY
This chapter presents the methodology that will be used to carry out the study. It further describes the
research design, type and source of data, research instruments to be used to collect data. It also
Investors in the real economy will also benefit from the fact that they can predict future economic
growth by looking at the performance of the stock market as confirmed by the two papers mentioned
The study findings of the study will also go a lon
This chapter introduces the study concept. It focuses on study background, the statement of the
problem, the objectives, research questions, significance, limitations and scope of the study.
Background of the Study
The concept of exchan