EFFECT OF EXCHANGE RATES ON BONDS PRICES: A SURVEY OF BONDS LISTED AT THE NAIROBI SECURITIES EXCHANGE
DOI:
https://doi.org/10.47672/aje.135Keywords:
Exchange rates, bond price. Nairobi Securities Exchange.Abstract
Purpose: The purpose of this study was to establish the effect of exchange rates on bond price.
Methodology: The research used an explanatory research design. 65 bonds listed in 23 categories at the NSE. The study used secondary data collected from NSE and the (KNBS) Kenya National Bureau of Statistics. A sample of 10 bonds was selected as these bonds were issued in the January 2008 and were still not mature by the 31st December 2012. Standard deviations were calculated for all the variables in the study. Further statistical analysis was carried out by use of correlation and regression analysis where bond prices were regressed against inflation, exchange rates and economic growth measured using the Kenya's Gross Domestic Product growth. The Statistical Package for Social Sciences (SPSS) version 17 was used to conduct the analysis. The findings were presented in form of tables and figures.
Results: The study found out that Correlation results also indicated that there was a positive and insignificant relationship between exchange rate and the bond price; this was also supported by regression results which indicated that the inverse of exchange rate is positively related to bond prices.
Unique contribution to theory, practice and policy: The study recommends that investors should also consider factors such as exchange rate as this determines the bond prices. It is recommended that the monetary authority should use policies aimed at weakening the Kenya shilling as doing so would increase bond prices. This is because bond prices would be cheaper and more attractive to foreign investors.
Downloads
References
Andersen, T., Bollerslev, T., Diebold, F.X. and Labys, P.,(2003), Modeling and Forecasting Realized Volatility, Econometrica, 71, 529-626
Arellano, C. (200). Default Risk and Income Fluctuations in Emerging Economies, The American Economic Review , Vol. 98, No. 3, pp. 690-712.
Bai Y.& Green C.J. (2008). Determinants of Cross-Sectional Stock Return Variations In Emerging Markets. AES, Business School, Napier University, Edinburgh, EH14 1DJ, United Kingdom
Barro, R & Grilli, V (1994), European Macroeconomics, Ch. 8, p. 139, Fig. 8.1. Macmillan, ISBN 0-333-57764-7
Bhole, L.M., & Mahakud, J. (2009). Financial institutions and markets: structure, growth and innovations. (5 ed., pp. 38-39). New Delhi: Tata McGraw-Hill.
Birchwood, A.(2004). An Examination of the Macro-economic Influence on Nominal and Real Interest Rate Spreads in the Caribbean. Presented at the XXXVIth Annual Monetary Studies Conference, Central Bank of Trinidad & Tobago
Bonds Squawk (2013). Bond Risk. Retrieved from http://www.bondsquawk.com/bond-risk/
Chau, M. (2012).Macroeconomic Determinants of Gold Industry Stock Returns. Honors Projects. Paper 26. http://digitalcommons.iwu.edu/busadmin_honproj/26
Delvaux, J. (2013). The case for investing in sub-Saharan Africa bond markets. Retrieved from http://www.howwemadeitinafrica.com/the-case-for-investing-in-sub-saharan-africa-bond-markets/25543/
Duffie D. & Kan R. (2002). Universal State Prices and Asymmetric Information, Journal of Mathematical Economics 38, 191-196
Ehrmann, M. & Fratzscher M. (2004b). Equal size, equal role? Interest rate interdependence between the euro area and the United States, Economic Journal,
Ehrmann, M. & Fratzscher, M (2004c). Exchange rates and fundamentals: new evidence from real-time data, Journal of International Money and Finance
Eita J.H (2011). Determinants of Stock Market Prices in Namibia.Working Paper 209. Monash University.
Evans L.C. & Marshall A.D. (1998). Monetary Policy and the Term Structure of Nominal Interest Rates: Evidence and Theory. Carnegie-Rochester Conference Series on Public Policy, 49, 53-111
Global Investor (2013). Gilts and Bonds. Retrieved from http:/ /www.incademy.com /courses/ Gilts-and-bonds/ Factors-which-affect-bond-prices/10/1067/10002
Goldberg, L. & Leonard, D. (2003). What Moves Sovereign Bond Markets? The Effects of Economic News on U.S. and German Yields. Current Issues in Economics and Finance, Federal Reserve Bank of New York, 9, 1-7
Hilscher J. & Nosbusch Y. (2010). Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt. Review of Finance (14): 235-262.
Jahjah, S. & Peter J. M., (2003). Exchange Rate Policy and Debt Crisis in Emerging Economies. IMF Working Paper 03/60.
Jahjah, S., Wei, B. & Yue, V.Z. (2012). Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries. International Finance Discussion Papers
Mcmillin W. D. and Koray F. (1990). Does Government Debt Affect Exchange Rate? An Empirical Analysis of the U.S- Canadian Exchange Rate. Journal Economic Business ,42, 279-288.
Merton R.C. (1973). An analytic derivation of the efficient portolio frontier, Journal of Financial and Quantitative Analysis 7 (1973), 1851-1872.
Mohan J. R. (2009). International Business. Oxford University Press, New Delhi and New York
NSE (2011). NSE Handbook 2011.
Obstfeld, M., & Kenneth R., (1995). Exchange rate dynamics redux, Journal of Political Economy 103, 624-660
Parsley, D. C., & Wei, S. (2001). Explaining the border effect: the role of exchange rate variability, shipping costs and geography, Journal of International Economics 55, 87-105
Riley, N. (2003, September 03). Reduce your risk with ICAPM . Retrieved from http:// www.investopedia. com/articles/financial-theory/09/ICAPM-and-CAPM.asp
Sheffrin, S.M. (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 552. ISBN 0-13-063085-3.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2017 Margaret Ngaruiya, Dr. Amos Njuguna
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
