
This work is licensed under a Creative Commons Attribution 4.0 International License.
Measuring the Effect of Foreign Currency Exchange Rate on Bank’s Financial Performance with Early IFRS 9 Compliance
Corresponding Author(s) : Sura Naufel Bahjat
American Journal of Economics and Business Management,
Vol. 5 No. 3 (2022): American Journal of Economics and Business Management
Abstract
The importance of examining the exchange rate effect has on banks profitability cannot be over emphasized, particularly, given this era of Global Financial Integration. Most banks are said to suffer from erosion of their profit arising from exposure to fluctuations in international currencies, especially, when proper hedging strategies are not adopted. The international financial reporting standards are set to lighten the effect of this exposure, also to guide firms regarding the risks faced in international markets. Many developing countries hadn’t complied with these standards nor adopted and reported them in their full form. This study used secondary data methodology and information obtained regarding international banks to examine the relative effect of exchange rate on banks profitability on a period of 5 years (from 2013- to 2018), also this research investigated the firm’s compliance rate with the International Financial Reporting Standard 9. In order to get the independent effect of exchange rate on banks profitability the study used Return on Equity to identify banks profitability. Also, the study introduced two control variables (bank size, inflation) into the study in order to conduct a regression analysis of the effect.
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- Abdel-Khalik, A. R. (2014). Prospect Theory predictions in the field: Risk seekers in settings of weak accounting controls. Journal of Accounting Literature, 33(1-2), 58-84.
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- Aldridge, I. (2013). High-frequency trading: a practical guide to algorithmic strategies and trading systems (Vol. 604). John Wiley & Sons.
- Allayannis, George and Weston, James P (2001), “The Use of Foreign Currency Derivatives and Firm Market Value,” Review of Financial Studies, Vol. 14, No. 1,
- PP.243-76
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- Ani, W. Ugwunta, D, & Okanya, O. (2013). The effect of FOREX reforms on financial deepening evidence from Nigeria. American Journal on Business and Management, 2(3), 204-209.
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- Baxter, M, & Stockman, A, C. (1989). Business Cycles and The Exchnage-Rate Regime. Journal of Monetary Economics, 23, 377-400.
- Bello, I. E., & Ufuah, M. E. (2018). Theoretical Framework And Its Relevance To Geographic Studies: An Application Of Innovation Diffusion Theory In CWM. American Journal of Geographical Research and Reviews, 2.
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References
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Abdullahi, B. C., & Aziz, W. N. A. W. A. (2017). Pragmatic housing policy in the quest for low-income group housing delivery in Malaysia. Journal of Design and Built environment, 8(1).
Addae, A. A., Nyark-Baasi, M., & Tetteh, M. (2014). Effect of exchange rate movements on Ghanaian banks. Journal of Finance and Accounting, 2(3), 62-71.
Adekunle, A. K. (2010). Exchange rates and the consumer price index in Nigeria: A causality approach. Journal of Emerging Trends in Economics and Management Sciences (JETEMS), 1(2), 114 -120.
Adekunle, A. K. (2010). Exchange rates and the consumer price index in Nigeria: A causality approach. Journal of Emerging Trends in Economics and Management Sciences (JETEMS), 1(2), 114 -120.
Adler, C. & Dumas, F. (2010). Does Fuel Hedging Make Economic Sense? The Case of the US Airline Industry. Financial Management, 35, 53-86
Adnan, N., Ahmad, M. H., & Adnan, R. (2006). A comparative study on some methods for handling multicollinearity problems. Matematika, 22(2), 109–119.
Ahmed, L., (2015). The Effect of Foreign Exchange Exposure on the Financial Performance of Commercial Banks in Kenya. International Journal of Scientific and Research Publications.
Ahmed, N., Ahmed, Z., & Ahmed, I. (2010). Determinants of capital structure: A case of life insurance sector of Pakistan. European Journal of Economics, Finance and Administrative Sciences, 24(24), 7-12.
Ahn, C. Y. (2001) A search for robust East Asian development models after the financial crisis: Mutual learning from East Asian experiences. Journal of Asian Economics, 12, 419- 443.
Alagidede, P., & Ibrahim, M. (2016). On the causes and effects of exchange rate volatility on economic growth: Evidence from Ghana. International Growth Centre (IGC), 1-27. Retrieved from http://www.theigc.org/project/on-the-causes-and-effect-of-exchange-rate-volatility-on-economic-growth-evidence-from-ghana/
Aldridge, I. (2013). High-frequency trading: a practical guide to algorithmic strategies and trading systems (Vol. 604). John Wiley & Sons.
Allayannis, George and Weston, James P (2001), “The Use of Foreign Currency Derivatives and Firm Market Value,” Review of Financial Studies, Vol. 14, No. 1,
PP.243-76
Amenawo, I., Riman, H. B., & Akpan, E. S. (2016). Foreign exchange fluctuations and commercial banks profitability in Nigeria. Foreign exchange, 7(18).
Ani, W. Ugwunta, D, & Okanya, O. (2013). The effect of FOREX reforms on financial deepening evidence from Nigeria. American Journal on Business and Management, 2(3), 204-209.
Ashok, M. A., & Vikram, K. A. (2016). Exchange Rate Volatility & its Impact on Macro economic Factors with respect to Indian Economy. International Journal of Social Science & Management, 4(6), 1-21. ISSN: 2319-300X.
Bahmani-Oskooee, M., Chang, T., Chen, T. H., & Tzeng, H. W. (2017). Revisiting purchasing power parity in Eastern European countries: quantile unit root tests. Empirical Economics, 52(2), 463-483.
Baxter, M, & Stockman, A, C. (1989). Business Cycles and The Exchnage-Rate Regime. Journal of Monetary Economics, 23, 377-400.
Bello, I. E., & Ufuah, M. E. (2018). Theoretical Framework And Its Relevance To Geographic Studies: An Application Of Innovation Diffusion Theory In CWM. American Journal of Geographical Research and Reviews, 2.
Bhopal, M. & Rowley, C. (2005) Ethnicity as a management issue and resource: Examples from Malaysia. Asia Pacific Business Review, 11, 553- 574.
Butler, K. C. (2016). Multinational Finance: Evaluating the Opportunities, Costs, and Risks of Multinational Operations. John Wiley & Sons.
Carter D. A, Pantzalis, C & Simkins, B.J (2003).Firm wide Risk Management of Foreign Exchange Exposure. U.S. Multinational Corporations, Version of April 28, 2003.
Casson, M. (1990). In G. Jones (Ed.), Evolution of multinational Banks: a theoretical perspective. London: Routledge: Banks as Multinationals
Chan Hooi Lam (MASB Board Member). 2018 IFRS 9 implementation - the Malaysian experience.
Corgel, J. B., Lane, J., & Walls, A. (2013). How currency exchange rates affect the demand for U. S. hotel rooms [Electronic version]. Retrieved from Cornell University, School of Hotel Administration site: http://scholarship.sha.cornell.edu/articles/651
Dam, D. L. (2010). Evaluation of credit risk management policies and practices in a Vietnamese joint-stock commercial bank's transaction office.
Danmola, R. A. (2013). The Impact of Exchange Rate Volatility on The Macroeconomic Variable in Nigeria. European Scientific Journal, 9(7), 1-14. ISSN: 1857 – 7881.
Danmola, R. A. (2013). The Impact of Exchange Rate Volatility on The Macroeconomic Variable in Nigeria. European Scientific Journal, 9(7), 1-14. ISSN: 1857 – 7881.
Degryse, H., De Jong, Frank., & Kervel, V. V. (2015). The impact of dark trading and visible fragmentation on market quality. Review of Finance, 19(4), 1587-1622.
Demirag, I., & Goddard, S. (1994). Financial management for international business.
Farah, M., (2014). Effect of Foreign Exchange Rate Volatility on Financial Performance of Local Oil Marketing Companies in Kenya. Unpublished Master of Finance Project, University of Nairobi.
Flood, R, P. & Rose, A, K. (1995). Fixing Exchange Rates a Virtual Quest for Fundamentals. Journal of Monetary Economics, 36(1), 1-37.
Ghosh, S. (2011). Examining crude oil price–Exchange rate nexus for India during the period of extreme oil price volatility. Applied Energy, 88(5), 1886-1889.
Giddy, I., & Allen, D. (2013). International competition in bank regulation. PSL Quarterly Review, 32(130).
Haneef, S., Riaz, T., Ramzan, M., Rana, M. A., Hafiz, M. I., & Karim, Y. (2012). Impact of risk management on non-performing loans and profitability of banking sector of Pakistan. International Journal of Business and Social Science, 3(7).
Irungu, J. K. (2014). Alignment of Strategy to Industry Critical Success Factors among Commercial Banks in Kenya. MBA project, University of Nairobi.
Jansson, M., & Biel, A. (2011). Motives to engage in sustainable investment: a comparison between institutional and private investors. Sustainable Development, 19(2), 135-142.
Kasman, S., Vardar, G., & Tunç, G. (2011). The impact of interest rate and exchange rate volatility on banks' stock returns and volatility: Evidence from Turkey. Economic Modelling, 28(3), 1328-1334.
Katusiime, L., Agbola, F. W., & Shamsuddin, A. (2015). Exchange rate volatility–economic growth nexus in Uganda. Applied Economics, 48(26), 2428-2442. doi: 10.1080/00036846.2015.1122732
Kedia, Biller. L., & Lahiri, S. (2007). International outsourcing of services: A partnership model. Journal of International Management, 13(1), 22-37.
Khin, A. A., Yee, C. Y., Seng, L. S., Wan, C. M., & Xian, G. Q. (2017). Exchange Rate Volatility on Macroeconomıc Determinants In Malaysia: Vector Error Correction Method (Vecm) Model. Journal of Global Business and Social Entrepreneurship (GBSE) Vol, 3, 36-45.
Khrawish, H. A. (2011). Determinants of commercial banks performance: Evidence from Jordan. International Research Journal of Finance and Economics, 81, 148-159.
Kiganda, E. O. (2014). Effects of Macroeconomics Factors on Commercial Banks Profitability in Kenya: Case study of Equity Bank Limited. [online]. Journal of econimic and sustainable development, 5 (2), 46-56
Kipchirchir, S. K. (2011). The Relationship between Financial Performance for Multinational Corporations in Kenya and Exchange Rates Volatility (Doctoral dissertation, University Of Nairobi).
Kiptisya, C. (2017). The Effect of Foreign Exchange Risk Management on the Financial Performance of Commercial Banks in Kenya: A Case of Stanbic Bank (Doctoral dissertation, United States International University-Africa).
Kothari, C. R. (2004). Research methodology: Methods and techniques. New Age International.
Lambe, I. (2015). Assessing the Impact of Exchange Rate Risk on Banks Performance in Nigeria.Journal of Economics and Sustainable Development, 6(6)
Lewis, M., & Davis, K. (1987). Domestic and international banking. Cambridge: MIT Press
Liu S, Zhang D, Chang TY (2012) Purchasing power parity-nonlinear threshold unit root test for transition countries. Appl Econ Lett 19:1781–1785
Madura, J. (2012). International Financial Management (11th ed.). South-Western College Publishing.
Marzuki, M. M., Rahman, A. R. A., Marzuki, A., Ramli, N. M., & Abdullah, W. A. W. (2021). Issues and challenges of IFRS 9 in Malaysian Islamic financial institutions: recognition criteria perspective. Journal of Islamic Accounting and Business Research.
Majok, (2015). Effects of Exchange Rate Fluctuations on Financial Performance of Commercial Banks in Kenya. MBA Project, University Of Nairobi.
Matthews, K. , & Ismail, M. (2006). Efficiency and productivity growth of domestic and foreign commercial banks in Malaysia, Working Paper . United Kingdom: Cardiff University.
Menon, J. (2009) Macroeconomic management amid ethnic diversity: Fifty years of Malaysian experience. Journal of Asian Economics 20, 25- 33.
Mertz, D., Kim, T. H., Johnstone, J., Lam, P. P., Kuster, S. P., Fadel, S. A., ... & Loeb, M. (2013). Populations at risk for severe or complicated influenza illness: systematic review and meta-analysis. Bmj 6th World Conference on Research Integrity, 347, f5061.
Moghavvemi, S., Lee, S. T., & Lee, S. P. (2018). Perceived overall service quality and customer satisfaction: A comparative analysis between local and foreign banks in Malaysia. International Journal of Bank Marketing.
Mol, A. P. (2012). Carbon flows, financial markets and climate change mitigation. Environmental Development, 1(1), 10-24.
Moles, P. (2002). Managing strategic exchange risks exposures. Managing Finance, 28, 29-39.
Mugenda, A. G. (2008). Social science research: Theory and principles. Nairobi: Applied.
Muharam, H. (2013). The influence of fundamental factors to liquidity risk on banking industry: Comparative study between Islamic bank and conventional bank in Indonesia.
Murthy, Y., and Sree, R. (2003). A Study on Financial Ratios of major Commercial Banks. Research Studies, College of Banking & Financial Studies, Sultanate of Oman.
Ngerebo, T. A (2012) The impact of foreign exchange fluctuation on the intermediation of banks in Nigeria (1970 – 2004). [online]. African Journal of Business Management, 6 (11), 3872-3879. http://www.academicjournals.org/AJBM
Nyandema, C., and Langat, D., (2016). The Influence of Foreign Exchange Rate Fluctuations on The Financial Performance of Commercial Banks Listed at The Nairobi Securities Exchange. British Journal of Marketing Studies Vol.4. International studies
Ongore, V. O. and Kusa, G. B. (2013). Determinants of Financial Performance of Commercial Banks in Kenya. [online]. International journal of Economica and Financial issues, 3 (1), 237-252. www.ecinjournals.com/index.php/ijefi/article/view/334
Ortiz, A. S., & Monge, R. G. (2015). Finding International Fisher effect to determine the exchange rate through the purchasing power parity theory: the case of Mexico during the period 1996-2012. Applied Econometrics and International Development, 15(1), 97-110.
O'Sullivan, A., & Sheffrin, S. M. (2003). Economics: Principles in Action, 443
Osundina, C. K., Ademola, O. J., Olamide, J. O., & Moses, O. I. (2016). Exchange Rate Volatility and Banks Performance: Evidence from Nigeria. IIARD Int. J. Econ. Bus. Manag, 2(4), 1-11.
Otieno, P. O. (2015). Effect of Foreign Currency Exchange Rates on Financial Performance of The Banking Sector in Kenya. Thesis submitted to University of Nairobi.
Owojori, A. A., Akintoye, I. R., & Adidu, F. A. (2011). The challenge of risk management in Nigerian banks in the post consolidation era. Journal of Accounting and Taxation, 3(2), 23-31.
Portes, R. (2012). The Triffin Dilemma and a multipolar international reserve system. Rethinking Global Economic Governance in Light of the Crisis New Perspectives on Economic Policy Foundations, 47.
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