Foreign exchange transactions and financial performance of commercial banks in Uganda

Abstract

Foreign exchange transactions have been a big concern for investors, analyst, managers and shareholders in commercial banks. However, little is known, at least in Uganda, of how foreign exchange transactions are related to commercial banks’ financial performance and the direction of the relationship. The study focused on Foreign exchange transactions and financial performance of commercial banks in Uganda, a case study of Centenary Bank and it included the following objectives; to examine the effect of currency forwards on liquidity in centenary bank, to determine the influence of spot trading on capital growth in centenary bank and finally to establish the contribution of currency swaps on profitability in centenary bank. The population size of the study was 40 people including management, marketing department and finance department, however, the researcher used the already established table to determine the sample size of the study and this was determined by (Krejcie and Morgan 1970) which gave a sample of 36 respondents where it constituted both men and women as employees and clients of centenary bank. Data was collected from both primary and secondary sources: annual financial reports of commercial banks and foreign trading data and it was analysed by using SPSS Version 16 as well as using questionnaire and interview guide The study found out that, foreign exchange transactions in form of currency swaps, currency forwards and spot trading influence financial performance of commercial banks. This means that there exists a very strong relationship between foreign exchange transactions and financial performance of Centenary Bank.