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 ", 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 .