Movements in foreign currency exchange rates and operational performance

Abstract

This study examined the relationship between changes in foreign currency exchange rates and operational performance of hotels in Nairobi. In doing so, it sought to determine whether operational controls can be used to reduce foreign currency exchange risks in hotels in a developing country. The population for the study was the five-star hotels in Nairobi. Data on hotel occupancy, currency exchange rates, market interest rates and inflation was collected from a sample of hotels in Nairobi, Central Bank of Kenya and the Kenya Bureau of Statistics over a period of four years (2007-2010). A survey was also carried out. Step-wise regression model was used in analyzing the data. The key finding in this study showed that there was a significant positive relationship between operational performance and movements in currency exchange rates. The study also found that interest rates were not an important factor in determining operational performance of hotels in developing countries.