Determinants of Adoption of Hedging Practices by Small and Medium-Size Banks in Kenya, Nairobi County.
Abstract
Banks have distinct treasury departments, with clearly written manuals that guide its dayto-
day functions. These differences tends to rationalize the way hedging has always been
done and since there are procedures in place as and when the circumstances warrant that
changes be implemented. Hedging has been a preserve of the big organizations as the
earlier scholar's portray. The problem in exchange rates has been due to the many
transactions and various branches of foreign banks in a particular period. This creates
many hindrances for a smooth operation of the organization especially in small and
medium-sized banks. The study was guided by the following objectives; to evaluate the
various hedging practices used by small and medium banks, to determine the factors in
currency options as a hedging tool by Small and medium-sized banks, to identify factors
that favour forward contracts as compared to the currency option contracts and to make
recommendations on the usage of currency option by small and medium-sized banks as a
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hedging practice. The study used a descriptive research design to obtain. The location of
the study was the small and medium-size banks in Kenya, Nairobi County. The
population was 130 respondents. The researcher randomly sampled 15 organizations and
68 respondents. Both primary and secondary data was collected. Currency option data
was collected from employees working for the small and the medium-sized banks. The
main departments visited were administration, marketing, finance and accounting. Data
was collected by use of questionnaires, observation and interview methods. The
questionnaire were dropped and picked after a day by the researcher. Interview method
was used on the respondents so that the researcher could be able to probe more some of
the respondents, who if left with the questionnaire could delay completing them.
Observation schedules were prepared and researcher recorded what was seen while
conducting the research. Both the qualitative and quantitative data were processed and
analyzed by use of descriptive statistics to become meaningful to the users. The results
were presented in form of frequencies tables, graphs and discussions. The study made a
conclusion on the hindrances and aimed at making recommendations based on the
findings with a view to accommodating all aspects of daily operation. The findings of this
study helps and shows the factors favoring currency options usage by large banks and
multinational banks, mainly for financial reasons while smaller and medium-sized banks
need to 'protect themselves from exchange rate movements. The research can also help
future researchers and investors in the field of finance and accounting .