Analysis of the determinants of financial performance of foreign exchange bureaus in Nairobi County moderated by firm size

Abstract

Foreign exchange (Forex) markets are crucial in international trade and financial transactions globally. They allow for the exchange of currencies from different countries that enables cross-border trade in goods, services, and financial assets. The daily volume of trades in the global Forex market is estimated to be over $7.5 trillion, underscoring its immense scale and importance to the worldwide economy. The study sought to analyse the determinants of financial performance of foreign exchange bureaus in Nairobi County moderated by the firm size. Its specific objectives include evaluating the effect of pricing strategies on the financial performance of foreign exchange bureaus in Kenya, assessing the effect of government regulations on financial performance of foreign exchange bureaus in Kenya, and examining the moderating effect of firm size on the determinants of financial performance. The Purchasing Power Parity and International Fisher Effect theories supported the study. The study applied a post-positivism research philosophy and used a descriptive research design. The study applied a convenience sampling technique to select all 61 Forex bureaus in Nairobi. Primary data was collected through a questionnaire. The data collected was edited, coded, and then fed into SPSS, aiding the data analysis. The data was analysed using descriptive and inferential statistics. The analysed quantitative data was presented using tables, charts, and graphs. The study results showed that pricing and government regulations are significant determinants of financial performance of Forex bureaus. The study found a positive and significant moderating effect of firm size on the relationship between the determinants of financial performance and financial performance. The study recommends the management to invest in technology integration to enable fast and accurate pricing strategies. The implication of the study was that the Central Bank of Kenya should consider re-evaluating the compliance burden placed on Forex bureaus. While regulations are essential for transparency and consumer protection, overly burdensome requirements may hinder profitability, especially for larger firms. The study recommends more research should be conducted on more than two independent variables as well as other moderating variables to aid management with a more comprehensive view that can better inform management strategies and policy formulation.

Keywords: Determinants of Financial Performance, Financial Performance, Firm Size, Forex Bureaus