Moderating effect of balance of payment position on the drivers of exchange rate volatility in Kenya

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dc.contributor.authorKirianki, L.
dc.date.accessioned2024-07-30T07:31:26Z
dc.date.available2024-07-30T07:31:26Z
dc.date.issued2024
dc.descriptionFull - text thesis
dc.description.abstractThe volatility of exchange rates is the source of exchange rate risk and has certain implications on the volume of international trade. Exchange rates influence decisions made by individuals, governments, and businesses. Collectively, this affects economic activity, inflation, and the balance of payments. The study sought to establish the effects of market sentiment, information asymmetry, and economic cycles on exchange rate volatility in Kenya, moderated by the balance payment position. The study was supported by the Purchasing Power Parity Theory. It applied a positivist research philosophy while its research design was correlational. Secondary data on the research variables was collected from the Central Bank of Kenya and Bloomberg for ten years between 2014 and 2023 using monthly data a total of 120 observations. This study used EViews12 to conduct descriptive and inferential statistical analysis. According to the findings of the study, Balance of payment was significant as a moderating variable for all the equations and reduced the effect of the independent variable on the dependent variable thus strengthening the Kenya shilling. All regression models indicate that the dependent variable of exchange rates was significantly affected by information asymmetry, economic cycles, and balance of payment. Inflation was introduced as a control variable and was found to be significant in all models. The study adds to the existing body of knowledge on drivers of exchange rate volatility by providing fresh insights through the focus on the moderating effect of balance of payments. Additionally, the interactions amongst market sentiment, information asymmetry, and economic cycles in one single study are unique in terms of their influence on exchange rate volatility, thereby offering useful references to scholars, professionals, and researchers. The study recommended that the Government needs to come up measures to reduced information asymmetry in the economy and find solution to high net imports by encouraging import substitution. These policies should be cognisant of underlying factors such as information asymmetry, economic cycles, and even balance of payments. Key Terms: Balance of Trade Position, Economic Cycles, Information Asymmetry.
dc.identifier.citationKirianki, L. (2024). Moderating effect of balance of payment position on the drivers of exchange rate volatility in Kenya [Strathmore University]. http://hdl.handle.net/11071/15514
dc.identifier.urihttp://hdl.handle.net/11071/15514
dc.language.isoen
dc.publisherStrathmore University
dc.titleModerating effect of balance of payment position on the drivers of exchange rate volatility in Kenya
dc.typeThesis
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