Effect of Exchange Rate Movements on Ghanaian Banks
Journal of Finance and Accounting
Volume 2, Issue 3, May 2014, Pages: 62-71
Received: Apr. 29, 2014; Accepted: May 12, 2014; Published: May 30, 2014
Views 3492      Downloads 341
Albert Amponsah Addae, Methodist University college Ghana, Department of Banking and Finance, Box DC 940 Dansoman- Accra
Michael Nyarko-Baasi, Methodist University college Ghana, Department of Banking and Finance, Box DC 940 Dansoman- Accra
Michael Lawer Tetteh, School of Business, Zenith University College, Ghana
Article Tools
Follow on us
The main purpose of this paper is to look at the exchange rate sensitivity of some listed banks on the Ghana Stock Exchange (GSE) between 2005 and 2010. In order to achieve the purpose, we adopted both quantitative and qualitative approaches. Econometric models were employed to deal with both the exchange rate sensitivities and to ascertain the exchange rate exposure of the Banks. The study discovered that all the banks studied engage in forex trading and made gains/profits from such activities. It was further found that apart from Ghana Commercial Bank and Standard Chartered Bank who were exposed to foreign exchange risk - pound sterling, the rest of the banks had no exposure to any of the currency risk. All the banks on the other hand have risk management structures in place to mitigate any risks that arise as a result of their operations. The overall interest in risk management by the banks is very high as they have put in some financial derivative measures to mitigate any exchange rate risk that they are exposed to.
Exchange Rate, Foreign Exchange Risk, Ghana Stock Exchange
To cite this article
Albert Amponsah Addae, Michael Nyarko-Baasi, Michael Lawer Tetteh, Effect of Exchange Rate Movements on Ghanaian Banks, Journal of Finance and Accounting. Vol. 2, No. 3, 2014, pp. 62-71. doi: 10.11648/j.jfa.20140203.15
Abor, J. (2005), “Managing foreign exchange risk among Ghanaian firms”, Journal of Risk Finance, Vol. 6, No. 4, pp. 306-18.
AlDiab, T.F., M.M, Zoubi, and P.W. Thornton. (1994). The effect of changes in the dollar foreign exchange rate on stock returns of multinational corporations. Journal of Applied Business Research, Vol.10.
Allayannis, G. and Ihrig, J. (2001), “Ex-posure and Markups”, The Review of Financial Studies, Vol. 14, No. 3 (Autumn, 2001), pp. 805-835.
Bhattarai, K. R. and Armah, M. K. (2005),“The Effects of Exchange Rate on the Trade Bal-ance in Ghana: Evidence from Cointegration Analy-sis”,Research Memorandum 52, August 2005,pp. 3-37.
Bodnar, Gordon and Gentry, William. (1993). Exchange-rate exposure and industry characte-ristics: evidence from Canada, Japan and U.S. Journal of International Money and Finance, 1993,12(1), pp. 29-45
Bradley, K. and Moles, P. (2002), “Man-aging strategic exchange rate exposures: evidence from U.K. firms”, Managerial Finance, Vol. 28, No. 11, pp. 28-42.
Brunner, M., Glaum, M. and Himmel, H. (2000). The DAX and the Dollar: the economic exchange rate exposure of German corporations. Journal of In-ternational Business Studies, Vol 31, No 4, pp. 715-724.
Carrieri, F. and Majerbi, B. (2006), “The Pricing of Exchange Risk in Emerging Stock Markets” Journal of International Business Studies, Vol. 37, No. 3 (May, 2006), pp. 372-391.
Carrieri, F., Errunza, V. and Majerbi, B. (2006), “Does Emerging Market Ex-change Risk Affect Global Equity Prices?”, The Journal of Financial and Quantitative Analysis, Vol. 41, No. 3 (Sep., 2006), pp.511-540.
Chang, Y. (2002). The Pricing of foreign exchange risk around the Asian Financial crisis: Evidence from Taiwan’s
Choi, J. J., Elyasiani, E. and Kopecky, K. J. (1992), ‘‘The sensitivity of bank stock returns to market: interest and exchange risks’’, Journal of Banking and Finance, Vol. 16, pp. 983-1004.
Chow, E. H., Lee, W. Y. and Solt, M. E. (1997). The exchange-rate risk exposure of asset Re-turns. Journal of Business 70, 105-123.
Chowdhry, B. (1995), “Corporate Hedging of Exchange Risk When Foreign Currency Cash Flow is Uncertain” Management Science, Vol. 41, No. 6 (Jun., 1995), pp. 1083-1090.
Donnelly, R., and E. Sheehy. (1996). The share price reaction of U.K expor-ters to exchange rates movements: An Empirical study. The Journal of International Business Studies, Vol.27.
Dufey, G. and Srinivasulu, S. L. (1983), “The Case for Corporate Management of Foreign Ex-change Risk” Financial Management, Vol. 12, No. 4 (Winter, 1983), pp. 54-62.
Dumas, B. (1978), “The theory of the trading firm revisited”, Journal of Finance, Vol. 33, No. 3, pp. 1019-1029.
Evans, Martin D., and Richard K. Lyons (2002), “Order Flow and Exchange Rate Dynamics,” Journal of Political Economy, Vol. 102, pp. 170-180.
Fang, H and J.C. Loo. (1994). Dollar value and stock returns. International Review of Economics and Finance, Vol.3.
Jebuni, C. D. (2006), “The Role Of The Exchange Rate in Eco-nomic Policy Design and Analysis”, CEPA Seminar Series on Macroeconomic Modeling and Public Accounts Management, Centre for Policy Analysis (CEPA), 22nd March, 2006.
Jin Park, B. and Paul Choi, (2011), “Interest rate sensitivity of US property/liability insurer stock returns”, Managerial Finance, Vol. 37, Iss: 2, pp. 134 – 150.
Jorion, P. (1990). The Exchange rate exposure of U.S. multinational. Journal of Business, Vol. 63 No: 3, 331-345.
Jorion, P. (1991). The Pricing of Exchange Rate Risk in Stock Market, Journal of Finan-cial and Quantitative
Joseph, N.L. (2002). Mod-elling the impacts of interest rate and exchange rate changes on UK stock returns. Derivatives Use, Trading and Regulation, Vol. 7.
Khoo, A. (1994), ‘‘Esti-mation of foreign exchange exposure: an application to mining companies in Australia’’, Journal of International Money and Finance, Vol. 13, pp. 342-63.
Koutsoyiannis, A. (2001), “Theory of Econometrics”, 2nd Edition, PALGRAVE, NY.
Krishnamoorthy, A. (2001). “The impact of industrial structure and the exchange rate exposure of industry portfolio returns” Global Finance Journal, Vol.12.
Logue, D. E. and Oldfield, G. S. (1977), “Managing Foreign Assets When Foreign Exchange Markets Are Efficient”, Financial Management, (Summer 1977).
Loloh, F. W. (2011), “Ghana: fiscal policy responsiveness, Persistence and discretion”, Bank of Ghana Working Paper, WP/BOG-2011/10, pp. 2-23.
Luehrman, T. A. (1991). Exchange Rate Changes and the Distribution of Industry Value. Journal of International Business Studies, 22, 619-649.
Madura J. (2006), International Finan-cial Management, 8th Edition.
Miller, K. D. and Reuer, J. J. (1998a), “Firm Strategy and Economic Expo-sure to Foreign Exchange Rate Movements”, Journal of International Business Studies, Vol. 29, No. 3 (3rd Quar-ter 1998), pp. 493-513.
Miller, K. D. and Reuer, J. J. (1998b), “Asymmetric Corporate Exposures to Foreign Exchange Rate Changes” Strategic Management Journal, Vol. 19, No. 12 (Dec., 1998), pp. 1183-1191.
Mintao, F. and Lyons, R. K. (2003) “Customer Trades and Extreme Events in Foreign Ex-change,” in Essays in Honor of Charles Goodhart, Paul Mizen (ed.), Edward Elgar: Notrhampton, MA, USA, pp. 160-179.
Mishkin, F. (1996) “The Channels of Monetary Transmission: Lessons for Monetary Policy,” NBER Working Paper, No. 5464, pp. 23-41.
Nance, D., C. Smith & C. Smithson. (1993). On the determinants of corporate hedging. Journal of Finance, Vol.48.
Rosenberg, M. R. (2003), Exchange-Rate Determination: Models and Strategies for Exchange-Rate Forecasting, Mcgraw-Hill Professional.
Salvatore, D. (1995), International Economics, Mcgraw-Hill Companies, Fifth Edi-tion.
Shapiro, A. C. (1974), “Exchange rate changes, inflation and the value of the multinational corporation”, Journal of Finance, Vol. 30, No. 2, pp. 485-502.
Stuart Hyde, (2007), “The response of industry stock returns to market, exchange rate and interest rate risks”, Managerial Finance, Vol. 33 Iss: 9, pp. 693 – 709.
Tongco, M. D. C. (2007), “Purposive Sampling as a Tool for Informant Selection” A Journal of Plants, People, and Applied Research, Vol. 5, pp. 147-158.
Verschoor, W. F. C. and Muller, A. (2007), “The Asian crisis exchange risk exposure of US multinationals”, Managerial Finance, Vol. 33, Iss: 9, pp. 710 – 740.
Yin, W. C., Chinn, M .D. and Marsh, I. W. (2000) “How do UK-Based Foreign Exchange Deal-ers Think Their Market Operates?” NBER Working paper, No. 7524, pp. 12-39.
Zubeiru, Kofi & Adjasi, K. (2007). Foreign exchange risk exposure of listed compa-nies in Ghana. The Journal of Risk Finance Incorporating Balance Sheet, Volume 8, Number 4.
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
Tel: (001)347-983-5186