| dc.description.abstract | Kenya being a net importer of oil, the Oil marketing companies (OMC's) are exposed to
foreign exchange transactions while purchasing the products either locally from other OMC's or
while importing the whole parcel to sell to other importers. In finance literature, many methods
are available to manage the currency exposure. How effective are these methods in managing
the currency exposure? This study focused on establishing how various methods which are
available in financial literature have been used to manage the effect of foreign currency exposure.
Specific objectives were to evaluate how each of the three techniques of managing foreign
currency exposure, namely external hedging, internal hedging and finally money market hedges
have effectively been able to manage the exposure. This study was expected to be of benefit to
many stakeholders, including but not limited to oil marketing companies, the government
and academicians. The study is supported by various theories that relate the price of goods to
changes of exchange rate, these are purchasing power parity, interest rate parity and International
fisher effect theory. This study adopted a descriptive survey research design. The study population
was finance managers of all the 36 oil marketing firms. The population is in three strata i.e. 3
large, 17 medium and 16 small companies. A census study was adopted since the population is
small. Data was collected using a closed ended questionnaire which will be administered using a
trained research assistant by dropping it and picking later. The descriptive statistics used included
percentages, means, standard deviations and frequencies while correlation was used to measure
the association between the variables. The information was then displayed by use of bar
charts, graphs, pie charts. Content analysis was used to analyze data that was qualitative in nature
or aspect of the data collected from the open ended questions. The study established that the most
popular method of currency exposure management was risk sharing, followed by leading and
lagging and in the third place was currency diversification. Incidentally, the first three methods
were all internal hedging techniques. The least effective method of currency risk management was
uncovered money market hedges. This study therefore concludes that the management of oil
marketing firms are exposed to currency exposure and it is affecting their performance. The study
recommended that the risk management function should be given to an office or a department that
is dedicated to risk management | en_US |
