CURRENCY EXCHANGE RATE FlUCTUATION AND PERFORMANCE OF

CORPORATIONS UGANDA; A CASE STUDY J SET

FOREX BUREAU

BY

KATANA AllEN

.NO: 1153-05014-00084

A RESEARCH REPORT SUBMITTED TO THE COllEGE OF ECONOMICS

AND MANAGEMENT SCIENCES IN PARTIAl FUlFillMENT FOR

THE REQUIREMENTS OF THE AWARD OF A BACHELORS

DEGREE OF BUSINESS ADMINISTRATION

OF KAMPALA INTERNATIONAl

UNIVERSITY

AUGUST,2018
 DECLARATION

I, Katana Allen declare to the best of my knowledge and ability that this report
is my original work and it has never been submitted anywhere for any
academic qualification award and a ll work that is not originally mine has been
cited and acknowledged.

Signature: .. . !/.r~ ........................ ...

KATANA ALLEN

(RESEARCHER)
u \ ....
Date: .. ........ 0'\... ..... p
\ \................ ... .. ... .... .
 APPROVAL

I certify that this research report has been submitted by the candidate for
examination with my approval.

Signature ... .. ......... ~.-~-'. ..... . .

MR. TIMBIRIMUMICHAEL

(SUPERVISOR)

Date: ....... . I~~ Q.'1.. / (.~- ........... .

ii
 DEDICATION

I dedicate this pierce of work to my parents, brothers, sisters and friends for
their academic support, time, prayers and guidance rendered to me. May the
good Lord reward you all.

iii
 ACKNOWLEDGEMENT

Special thanks goes to Almighty God for the great gift of life and wisdom offered
to me and by whose grace he has seen me through the hard times I
encountered and made me complete this course successfully.

I also acknowledge the help and support of my parents in making this research
a success in my education.

I extend my appreciation to supervisor Mr. Timbirimu Michael for his efforts

and time sacrificed to me during the course of this research.

Lastly, I would like to thank all my friends and relatives who have given me
help in one way or another but their names have not appeared here, know that
I really appreciate your support in my form.

GOD BLESS YOU ENDLESSLY.

iv
 LIST OF ACRONYMS

KIU Kampala International University.

BBA Bachelors of Business Administrations.

UG Uganda.

IC International Corporations.

IV Independent Variable.

DV Dependent Variable.

EV Extraneous Variable.

JSFB Jet Set Forex Bureau.

JIFB Jameson International Forex Bureau.

BOT Balance of Trade.

BOU Bank of Uganda.

UFBA Uganda Forex Bureau Association.

GDP Gross Domestic Product.

GP Gross Profit.

PM Profit Margin.

GPM Gross Profit Margin.

USD United States Dollars.

EUR Euros.

GBP British Pounds.

ZAR South African Rands.

v
KSH Kenyan Shillings.

TSH Tanzanian Shillings.

SSP South Sudan Pounds.

$ Dollars.

NGO Non-Governmental Organization.

Rd Road.

us United States.

+ Positive Change.

Negative Change.

wu Western Union.

MG Money Gram.

EM Express Money.

AFR Annual Financial Report.

CBP Crimson Business Publications.

CB Central Bank

vi
 TABLE OF CONTENT
DECLARATION .......................................................................................................................................... i
APPROVAL .................................................................................................................................................. ii
DEDICATION ............................................................................................................................................ iii
ACKNOWLEDGEMENT ............................................................................................. ;........................... iv
LIST OF ACRONYMS .............................................................................................................................. v
TABLE OF CONTENT ........................................................................................................................... vii
LIST OF TABLES ............................................................................................................... :...................... x
LIST OF FIGURES .................................................................................................................................. xi
ABSTRACT ............................................................................................................................................... xii

CHAP1'ER ONE ......................................................................................................................................... 1

INTRODUCTION ....................................................................................................................................... 1
1.0 Introduction .......................................................................................................... 1
1.1 Background of the study ....................................................................................... 1
1.2 Statement of the problem ...................................................................................... 2
1.3 Purpose of the study ............................................................................................. 3
1.4 Study objectives ................................................................ .'................................... 3
1.5 Research questions .............................................................................. ~ ................ 3
1. 6 Scope of the study ................................................................................................. 3
1. 7 Significance of the study ....................................................................................... 3
1.8 Conceptual framework ................................................................................................................... 4
1. 8 Organization of the report ............................................................................................................. 6

CHAP1'ER TW0 ......................................................................................................................................... 7

LITERATURE REVIEW ........................................................................................................................... 7
2.0 Introduction .......................................................................................................... 7
2. 1. Theoretical Review ................................................................................................ 7
2.2.0 Causes of foreign exchange rate fluctuations ...................................................... 8
2.2.1 Monetary regimes ............................................................................................... 9
2.2.2 Dollarization ....................................................................................................... 9
2.2.3 Interest rates ...................................................................................................... 9

vii
2.2.4 Market Speculators .......................................................................................... 10
2.2.5 Inflation rate .................................................................................................... 10
2.2.6 Govemment budget deficits and surpluses ........................................ :.............. 10
2.2.7 Balance ofTrade ............................................................................................... 11
2.2.8 Economic growth and health ............................................................................ 11
2.3 Performance of Corporations in Uganda .............................................................. 11
2.6.0 Measures taken by Corporations to manage foreign exchange rate
fluctuations in Uganda ..................................................................................... 18
2.6.1 Payment Netting ............................................................................................... 18
2.6.2 Prepayments .................................................................................................... 19
2.6.3 Leading and Lagging ......................................................................................... 19
2.6.4 Hedging with derivatives ................................................................................... 20
2.6.5 Forward and Future contracts .......................................................................... 20
2.6.6 Currency Option ............................................................................................... 21
2.6.7 Currency Swaps ............................................................................................... 21
2. 7 Factors that affect the performance of Corporations besides Foreign Exchange Rate
fluctuations ........................................................................................................ 22

CHAPTER THREE .................................................................................................................................. 24

RESEARCH METHODOLOGY ............................................................................................................ 24
3.0 Introduction., ...................................................................................................... 24
3. 1 Research design .................................................................................................. 24
3.2 Area and population of the study ........................................................................ 24
3.3 Sample framework ............................................................................................... 24
3.3.1 Sample size ....................................................................................... : .............. 24
3.3.2 Sample procedure ............................................................................................ 25
3.4 Methods for collection methods ........................................................................... 25
3.4.1 Instruments ..................................................................................................... 25
3.4.2 Sources of Data ................................................................................................ 26
3.4.3 Reliability and validity ...................................................................................... 26
3.5 Data processing ................................................................................................... 27
3.5.1 Editing and spot checking ................................................................................ 27
3.5.2 Coding .............................................................................................................. 27

viii
3.6 Data analysis ...................................................................................................... 27
3.7 Ethical Considerations ........................................................................................ 27

CHAPTER FOUR .................................................................................................................................... 29

PRESENTATION AND DISCUSSION OF FINDINGS ................................................................... 29
4.0 Introduction ........................................................................................................ 29
4.1 Background Characteristics of the respondents .................................................. 29
4.2.2 Bank attempts to regulate inventories .............................................................. 33
4.2.3 Economic forces of demand and supply ............................................................................. 34
4.2.4 Lack of a well-functioning foreign exchange rate management system ................... 35
4.3: Performance levels of corporations ......................................................................................... 35
4.3.1 What are the performance levels of corporations in Uganda? ..................................... 35
4.4 Relationship between foreign currency exchange rate fluctuations and corporation
performances .................................................................................................................................. 36
4.4.2 Do you think exchange rates fluctuations affect a company's prices which in
turn affect all other operations of the corporations? ......................................................... 36
4.4.3 Do you think exchange rate fluctuations affect the domestic value of assets,
liabilities and operating incomes of corporations? ............................................................. 37
4.4.4 Do you think the company has a risk of making great losses when translating
foreign currencies from foreign operations to domestic currency for making
balance sheet and income statements? ................................................................................. 37
4.4.5 Is performance evaluation, production decisions, pricing and budgeting
complicated by fluctuations in foreign currency exchange rates .................................. 38

CHAPTER FIVE ...................................................................................................................................... 40

CONCLUSIONS AND RECOMMENDATIONS ............................................................................... .40
5.0Introduction ...................................................................................................................................... 40
5.1 Conclusions ..................................................................................................................................... 40
5.2 Recommendations ..........................................................................................................................41
5.3 Areas for further Results ............................................................................................................. 42
REFERENCES ......................................................................................................................................... 42
QUESTIONNAIRE .................................................................................................................................. 45

ix
 LISTOFTABLES

Table 1: 4.1: Classification of respondents by resignation ..................................................... 29

Table 2: 4.2: Respondents' level of education .............................................................................. 30
Table 3: 4.3: Number of years of service of respondents at forex bureau ......................... 30
Table 4:4.4 Respondents' marital status ....................................................................................... 31
Table 5: Respondents' religion .......................................................................................................... 32

X
 LIST OF FIGURES

Figure 1: Respondents view on varying amounts of currency in circulation .... 33

Figure 2:Respondents view on bank attempts to regulate inventories ............. 34
Figure 3: Respondents view on economic forces of demand and supply ......... 34
Figure 4 : Respondents view on lack of a well functioning foreign exchange rate
management system ...................................................................... 35
Figure 5: Respondents view on the relationship between foreign currency
exchange rate fluctuations and corporation performance ................ 36
Figure 6: Respondents view on whether exchange rate fluctuations affect the
domestic value of assets, liabilities and operating incomes of
corporations ................................................................................... 37
Figure 7: Respondents view on whether the company has a risk of making
great losses when translating foreign currencies from foreign
operations to domestic currency for making balance sheet and
income statements ......................................................................... 38
Figure 8: Respondents view on whetherperformance
evaluation,productiondecisions,pricing and budgeting complicated by
fluctuations in foreign currency exchange rates .............................. 39

xi
 ABSTRACT

The purpose of this study was to examine the relationship between

foreign exchange rate fluctuations and performance of corporations in
Uganda.

Literature review revealed that the variation of foreign currency exchange

rates has an effect on the ways corporations perform.

Data generation was achieved through the use of electronic library,

publications, written literature, journals and company reports.

Results revealed a significant relationship between foreign exchange rate

fluctuations and performance of corporations.

Managers of corporations should therefore take into considerations the

effects of foreign exchange rate fluctuations before embarking on any
project out of the parent company.

xii
 CHAPTER ONE

INTRODUCTION

1.0 Introduction
This chapter focuses on the background of the study, problem statement,
purpose of the study, objectives of the study, research questions, scope of the
study and the significance of the study.

1.1 Background of the study

According to EL-Masry and Abdel-Salam 2014, corporations are sensitive to
changes in the real domestic currency value of assets, liabilities or operating
incomes brought about by unanticipated fluctuations in exchange rate. This is
because such corporations have foreign currency based activities, assets and
competition.

Foreign exchange rate fluctuations have an effect on the performance of

corporations. The volatility of foreign exchange rates affects pricing by and also
contributes to price escalation, it affects planning, research, increases costs of
production if raw materials are sourced from abroad and places financial
constrains since an altered exchange rate in a particular trading country is
sufficient to wipe out their profits (Terpstra 2014).

These foreign exchange rate fluctuations are due to the existing monetary
system of today's global economy. With the abolishment of the fixed exchange
rate system in 1971 at Bretton Woods's agreement, exchange rate movements
have been a big concern for corporations. These fluctuations exposes
companies to foreign exchange risks as more corporations internationalize and
more economies become open to international trading (El-Masry and Abdel-
Salam 2014).

1
Today all currencies are affected by the forces of demand and supply. High
demand for a currency makes it appreciate which means a higher price in
relation to other currencies whereas low levels of demand for a currency
depreciates it (Hill 2014).

The implication for corporations is that their exports can become expensive in
other markets if they are produced from a country where the currency has
appreciated or cheaper in foreign markets if there is a currency depreciation in
the country of origin.

Many corporations respond by trying to reduce their foreign exchange risks, for
example by employing lead or lag strategies, setting up strategies in low cost
manufacturing locations or they develop policies to manage the risks
associated with foreign exchange fluctuations such as setting up in-house
foreign exchange centers, forecasting future exchange rate movement among
others (Hill 2014).

However it should be noted that foreign exchange rate fluctuations is not the
only determinant of the performance of corporations in Uganda, but other
factors such as legal, political, socio-cultural, economic environment and the
stage of the corporations growth play their parts too (Terpstra 2014).

1.2 Statement of the problem

Many corporations go international to expand sales, acquire resources,
diversity sources of sales and supply, minimize their competitive risks and
maximize total revenue inflows (Daniels and Redebough 2014). To achieve
these objectives, corporations deal with multiple currencies which are not a
serious problem but the difficulty arises because currencies frequently
fluctuate in value Vis-a· -Vis each other in unpredictable ways (Terpstra and
Sarathy 2014). This can therefore have a negative impact on their ol:>jectives.

2
 1.3 Purpose of the study

The purpose of the study is to determine the influence of foreign exchange rate
fluctuations on the performance of corporations in Uganda.

1.4 Study objectives

1. To examine the causes of foreign exchange rate fluctuations in Uganda.

To find out the performance level of corporations in Uganda.
2. To establish the effects of foreign exchange rate fluctuations on the
performance of corporations in Uganda.
3. To examine the measures taken by Corporations to control foreign
exchange rate fluctuations in Uganda.

1.5 Research questions

1. What are the causes of foreign exchange rate fluctuations in Uganda?

2. What are the performance levels of corporations in Uganda?
3. What are the effects of foreign exchange rate fluctuations on the
performance of corporations in Uganda?
4. What are the measures taken by Corporations to control foreign
exchange rate fluctuations in Uganda?

1.6 Scope of the study

The subject scope examines foreign exchange rate fluctuations and the
performance of corporations in Uganda.

The year of interest is 2016 and the study is scheduled for 3 months.

1. 7 Significance of the study

The report will provide literature to be used by other researchers as a reference

for other students in the future to guide them while doing similar research on
foreign exchange rates fluctuations.

3
The study will help the corporations in Uganda to know how to deal with
foreign exchange rate fluctuations and devise policies that will help minimize
their risk of foreign exchange rate fluctuations and enjoy their full advantages
of operation.

The study will not only help corporations but also the financial
institutions interested in providing hedging products to these corporations
in Uganda.

The study report is also a partial fulfillment for the requirement for the award
of aBBA of KIU.

To broadens the researcher's individual knowledge about the impact of

currency fluctuation on corporations in Uganda and gain the skills m
data collection in order to come out with resolutions.

1.8 Conceptual framework

Foreign exchange rate is the value of one currency for the purpose of
conversion to another currency (Concise Oxford Dictionary Tenth Edition).
It is also defined as the rate at which one currency is exchanged for
another. A high demand for a currency forces its price up and it is
called currency appreciation, whereas a low demand for a currency
lowers its price and it depreciates ( Hill, 20 15 ).

This section relates to the independent variable ( IV) which is exchange

rate and the dependent variable (DV) which Is performance of
corporations in Uganda and the extraneous variables.

4
A conceptual framework showing the independent variables,
dependent variables and extraneous variables of the study.

Figure 2.2.1

Independent variables (IV) Dependent Variables (DV)

Monetary regime Relative price

Dollarization Shift in expenditure

Interest rate Losses

Market speculators Difficulty in perform

evaluation
Inflation
Low demand
Government budget
deficit and surplus Budgeting difficulty

Balance of trade Low economic

rlPvPlnnmPnt

Extraneous ~ ariables (EX)

Socio cultural eco ~omic and Political factors

The conceptual framework of the study shows how foreign exchange rate
fluctuations affects the performance of corporations in Uganda. It reveals
that exchange rate 1s independent variable while performance IS

dependent variable. Foreign exchange rate is operationalize as monetary

regimes, dollarization, interest rates, market speculators, inflation,
government budget deficits and surpluses, balance of trade, economic
growth and health. Performance of corporations is operationalized as
relative prices, shift 1n expenditure, losses, difficulty m performance
evaluation, low demand, budgeting difficulty. The figure also shows the
social, cultural, economic and political factor as intervening variables.

5
A favorable and reliable exchange rate will lead to effectiveness and efficiency in
the performance of corporations in Uganda due to increased demand for the
currency and other currencies both locally and worldwide and thus attracting
more customers. Frequent appreciations in the currency will lead to low
demand and a shift to other currencies which are favorable to corporations.

1.8 Organization of the report

Chapter one introduces the study, chapter two shows the literature review of
the study,. chapter three the research methodology, chapter four discusses the
interpretations of findings and finally chapter five bears the conclusions and
recommendations.

6
 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction
This chapter explains In details the theoretical review, causes of foreign
exchange rates fluctuations, performance level of corporations, effects of
foreign exchange fluctuations on the performance of corporations and
measures taken by them to manage foreign exchange rate fluctuations in
Uganda.

2.1. Theoretical Review

Foreign exchange fluctuation IS the risk that an entity will be required
to pay more or less than expected as a result of increase or decrease
In the exchange rate between its currency and the foreign currency in
which payment has to be made. Thus its commonly known as the
additional variability expected by corporations m its worldwide
consolidate earnings that results from unexpected currency fluctuation. It
IS generally understood that this consolidated variability can be
eliminated partially or fully at cost, the cost of foreign exchange risk
management (Jacques, 2015)

Corporations are exposed to foreign exchange fluctuations or risk if the

results of their project depends on future exchange rates and if
exchange rate not be fully anticipated. Generally corporations are
exposed to three types of foreign exchange rate risks; transaction
(commitment) exposure, economic (operational, competitive or cash flow)
exposure and translation (accounting) exposure.

7
2.2.0 Causes of foreign exchange rate fluctuations
Foreign exchange rate is the price or rate at which one currency is exchanged
for another. A high level of demand for a currency forces its price up and it is
called currency appreciation whereas low levels of demand for a currency
lowers its price and it depreciates (Hill, 2015).

The 1971 Bretton Woods Agreement abolished the fixed rate system and
introduced the floating rate system where the price of currencies is determined
by demand and supply of money which has led to currency fluctuation. (El-
Masry and Abdel-Salam 2015).

As long as currencies remains the medium of exchange for commercial

transactions, market fluctuations of relative currency values will continue to
attract the attention and be a big concern for corporations.(Richard, 1986-
2015, currency risk management, Valore international).

The major trading currencies today are the USD, EUR, Japanese Yen, GBP,
Swiss Franc, Australian Dollar, Canadian Dollar, Swedish Krona, Hong Kong
Dollar, Norwegian Krone and other currencies accounting for only 15.5% out of
200%.

Growth in volume of foreign exchange in the international markets has been

due to interest rate volatility caused by internationalization of economies,
business internationalization caused by intense competition, increased

Corporate interest and the mcrease of trader's software and

telecommunications (Forex on-line, Manual for Successful trading 2015).

Foreign exchange rate fluctuations are caused by demand and supply of a

currency (JIFB, 2016). A currency's demand and supply is fluctuated by
numerous external factors (Abor, 2015). The factors are here discussed.

8
2.2.1 Monetary regimes
Fixed exchange rates encourages currency mismatches because banks and
firms hedge their dollar liabilities, they overlook the need to limit their open
foreign accounts since they believe themselves to be immune to exchange rate
fluctuations (Burnside et al 2014 and Goistein 2014).

On the other hand greater flexibility increases the cost of hedging and therefore
leads to lower currency mismatch (Mekinnon 2014). Floating regimes lead to
greater volatility therefore raising the cost of insurance and results in less
hedging rather than more. Floating regimes exacerbate rather than ameliorate
currency mismatches in markets (Arteta 20 15).

2.2.2 Dollarization
Dollarization of banks, forex bureau and credit in developing countries has
resulted into varying degrees of currency in domestic financial intermediation
(ARTETA 2015). Highly dollarized economies operate as small open economies
and since dollarization has tended to be self-perpetuating, it has encouraged
the growth of foreign currency lending which has led to exchange rate
instability (Sigh al 2015).

2.2.3 Interest rates

A high interest rates increases money inflow in a country as well as attracts
investors and speculators who seek to take advantage of the high interest rates
thereby boosting the demand for the country's currency causing its value to
rise (Jameson international Forex bureau).

However expansions in demand for emerging market bonds caused by higher

interest rates elsewhere causes an external shock which leads to decline in
asset prices leading to a decline in the foreign exchange rates (Tchakara and
Elckdag 2015).

9
2.2.4 Market Speculators
They take open positions by buying foreign exchange without simultaneously
contracting to sell and sell foreign currency without processing the currency to
meet the obligations (Hill 2014). Basing on political events or changing
commodity prices, speculators decide whether a currency will depreciate or
appreciate and then buy or sell a currency. In the process affecting a
currency's demand or supply leading to exchange rate fluctuations (JIFB)
Surveys of foreign currency trading by major US corporations indicates that
while a very small proportion (Perhaps 5%) engage in such trading solely as
speculators for trading profits, a much longer share (about 75%) ·speculate
some times.

2.2.5 Inflation rate

Too much money in circulation causes inflation and a decline in currency
value, a drop in a country's export and rise in import depreciates a country's
currency (JIFB). It erodes purchasing power and reduces demand for a
currency, however sometimes currencies become stronger when there is
inflation due to speculators hoping the CB will raise short- term interest rates
to combat inflation (Good friend, 2015). Purchasing power partly theory on the
other hand argues that inflation rate differentials create arbitrage opportunities
that will be eliminated by flexible exchange rates (Engel and Rogers, 2014).

2.2.6 Government budget deficits and surpluses

When the government runs a deficit, it borrows money by selling bonds to its
citizens and foreign investors. In the process it sells more of its currency and
pushes its price down (JIFB). The market reacts negatively to widening
government budget deficits and makes the currency lose value and a currency
gains value when budget deficits narrow (Good friend, 2015),

10
2.2. 7 Balance of Trade
Trade flows illustrates demand for goods and services which indicates a
demand for a country's currency to conduct trade (Good friend, 2015). A
Country with substantial trade surplus results in other countries wanting its
exports followed by a large demand for its currency and its value appreciates. A
large trade deficit makes a country sell its currency to buy foreign goods
causing the currency to depreciate (JIFB).

2.2.8 Economic growth and health

Deep recessions weakens a country's exchange rates, slow growth signals.
Economic weakness causes a currency to be marked down (JIFB). Good friend
2015, says a more healthy and robust economy bring about a high GDP,
employment levels, retail sales, capacity ability and therefore its currency will
perform well due to the demand for it.

2.3 Performance of Corporations in Uganda

International corporations are those which engage in economic activities across
national borders. They can be owned by a single country or several countries,
they include multinational companies and global companies.

Performance of corporations includes changing currencies, exporting, overseas

manufacturing, joint ventures, franchising, importing from overseas
subcontractors and counter trade (Terpstra and Sarathy, 2014). They normally
operate in order to expand sales and acquire resources, diversity sources of
sales and supplies and minimize their competitive risks (Daniels and
Radebaugh 2014).

To examine performance of corporations we will find out the performance levels

of Jet set Forex Bureau and other few international corporations.

11
Jet Set Fo:rex Bureau - Gum Municipality

This is a 13.8 billion dollar company serving people in more than 10 countries
by providing services in foreign exchange and related services.

It is a limited liability company which was incorporated and registered

in 1999 after the liberation of foreign exchange by the government.
JSFB is licensed by BOU and is a member of UFBA.

To meet daily needs of customers who need to send and receive money
worldwide, JSFB now avails its customers with WU, MG and XMT
services 24 hours across their locations.

With their strategic locations at the heart of Kampala city and around
Kampala, Entebbe Town, Entebbe Air Port and Gulu Town. With all
these locations you are sure to have excellent on spot forex services and
money transfer service much closer to you.

JSFB buy and sell all major foreign currencies like USD, GBP, EUR, KSH,
ZAR, TSH and SSP among others.

JSFB Gulu branch is located at the heart of Gulu Town along Atwal
Juba Rd. This branch also offers on spot forex services, western union,
money gram, and express money services to the residents of Gulu town,
NGO'S, Government parastatals, and foreigners including the traders who
trade between Sudan and Uganda because its most competitive rates,
excellent customer experience and the long hours of service given to
customer.

12
 Others are;

Colgate-Palmolive Company

This is a $ 15.6 billion company serving people in more than twenty

countries by providing oral care and pet care products.

In 2015, worldwide sales increased to 12.5% with every operating

division reporting a sales and profit increase. GPM increased to 140 basic
points. Excluding restructuring changes, PM increased to 90 basic points.
The company spent an increased 17% over 2014 in advertising. The total
amount being $ 1,545.7 million. Operating cash flows were 2,203.7 million
dollars and quarterly dividends rate increased by 13% in 2015 (2015 AFR).

In 2015 and 2014 the performance stood as follows;

TABLE SHOWING COLGATE PALMOLIVE WORLD WIDE

PERFORMANCE BETWEEN 2014 AND 2015.

2015 2014 CHANGE

·orldwide sales $12.233337.7 $11,396.9 +7.5%
ross profit 54.8% 54.4% +40basic points
Largm
perating profit 2,160.5 2,215.0 -2%
perating profit 17.7% 19.4% -170
Largm
et income 1.353.4 1.351.4
>ercentage of 11.1% 11.9 80 basic points
:ties
)iluted earnings 2.46 2.43 +1%
er share
Source: Colgate Palm-olive 2015 AFR.

13
Ameron International

Ameron is an international corporation that manufactures wind towers,

fiberglass and water transmission pipes. It supplies to chemical industries,
energy, transport and infrastructure markets. Functional currencies for the
company's foreign operations are applicable local currencies. Translation is
performed for balance sheet accounts using the current exchange rate.

The company's activities include research and development which took up $

5,653,000 of the company's income, environmental cleanup, inventory
valuation, joint venture and self-insurance. In 2014 $ 4,997,000 was spent on
paying interest while income tax paid was $ 10,268,000.(Ameron international
2013 AFR).

The company operated in three mmn divisions of water transmission,

fiberglass, and infrastructure product sales and in 2015 introduced the wind
tower's division that lowered the overall gross margins (Ameron international
2015 AFR).

Fiberglass group

Sales increased by 61.1 million dollars or 34.6% over 2015.The US recorded

6.9 million dollars due to increased demand for industrial piping. Asian
subsidiaries recorded 31.6 million dollars due to activities in industrial marine
and off-shore segments and the impacts of foreign exchange fluctuations.
Europe had 21.3 million dollars sales due to growth in industrial, oil field and
marine market and impact of Foreign exchange. High demand was due to high
oil prices and high costs of steel piping the principal substitute for fiberglass
p1pe.

GP increased by 26.9 million dollars compared to 2014 and PM improved to

36% in 2015 compared to 33.3% in 2014. This was due improved products and
marketing mix, price increases and plant utilization.

14
Water transmission group

Recorded increased sales of 15.3 million dollars or 8.7% increase in 2015

compared to 2014. This was due to diversifying to enter a new market of large
diameter wind towers as geographically entering new markets. The high sales
volume increased profit by $2.3 million in 2015.

GP declined by 12 million dollars in 2015 compared to 2014. PM declined to

7.3% in 2015 compared to 15% in 2014. The decline in margin negatively
impacted GP by 14.7 million dollars due to unfavorable mix of project startup
costs associated with introduction of wind towers and delay in construction of
wind tower plant.

Infrastructure group

Sales increased by 7.5 million dollars or 3.8% in 2015 compared to 2014.

Improved pricing, continued strength of governmental, commercial and
residential construction also contributed to this.

GP increased by 4.6 million dollars in 2015 compared to 2014 and the PM

improved to 25.1% in 2015 compared to 23.7% in 2014. Higher margins from
price increase and operating efficiencies was due to increased production.

Overall sales increased by 81.8 million dollars in 2015 due to increase demand
for marine piping, impact of foreign exchange rates on the company's Asian
and European subsidies and higher demands for construction materials.

Overall GP was 146 million dollars or 23% of sales compared to 132.4 million
dollars or 24.4% of sales in 2014. The 13.6 million dollar increase in GP was
due to the high sales volume while decline in GPM was due to reduced
profitability of the water transmission group.

15
2.5 Effects of foreign exchange rate fluctuations on the performance of
corporations in Uganda

Examining simple cash flow models of firms as well as their anecdotal evidence
from business press suggests that unexpected exchange rate fluctuations has
an effect on the value of corporations with foreign currency based activities,
assets and competition (El-Masry and Abdel-Salam 2015).

Exchange rate fluctuations affect relative prices of local currency and goods,
frequent appreciation of foreign currencies against local currency and the
difficult in retaining local customers because of high priced imported
inputs which tend to affect prices locally, such risks impact on all IC's
operations (Oxeiheim and Wihlborg, 20 15). Output and prices are affected
because foreign exchange rate fluctuations determine aggregate demand
through exports, imports and the demand for domestic currency and aggregate
supply through the cost of imported intermediate goods (IMP 2014).

Fluctuations in exchange rates affect relative domestic and foreign prices

causing expenditure to shift between domestic and foreign goods (Obstfeld
2014). The limited amount of finances allocated to a firms' operations affects
the real quantities labor at aggregate level as well as the exports performance
(Dekie and Ryoo, 2014).

Foreign exchange exposure makes corporations sensitive to changes m real

domestic currency value of assets, liabilities or operating incomes to un-
anticipated fluctuations in exchange rate (El-Masry and Abdel-Salam 2015).
Sourcing of financial resources, cross border remittance of funds and the
reporting of financial resources (Daniels and Radebaugh 2014).

Corporations as well as small and medium size businesses are running the risk
of major losses on foreign exchange dealings as they have failed to protect
themselves against currency movements in the volatile markets. A company

16
conducting $2 million of foreign exchange could be exposing itself to losses up
to $ 320,000 (CBP).

Performance evaluation of corporations is complicated further . by foreign

exchange rate fluctuations. Inadequate performance evaluation system
constrains efficient resource acquisition and utilization, stresses managers and
could lead to sub- optimal resource allocation decision (Oxeiheim and Wihlborg
20 15).

According to Daniels and Radebaugh 2015, exchange rate fluctuations affects

production decisions making it difficult and forcing corporations to relocate
productions to countries with weak currencies where they can retain
customers of low prices of other urgencies or inputs and to have
favorable prices of final products sold locally.

On the marketing side, exchange rate fluctuations can affect demand to

become low for a company's services or product sat home and abroad.
Corporation's exports may become expensive in case of domestic currency
appreciation or cheaper in case of depreciation (Hill 2014).

Milani and Rivera 2014, yet again explained the effect of foreign exchange rate
fluctuations on budgeting difficulty basing on three theories that examine the
underlying demand for assets denominated in a particular currency.

Translation exposure

Influences financial statements during development of a budget which act as

controls. Varying exchange rates throughout the budgetary period generates
unpredictable and often uncontrollable results during interim and final budget
performance reviews.

17
Transaction exposure

Results from international transactions like hedging contracted cash flows that
characterizes international trade, repatriation of profits and acquisition or
disposal of foreign assets.

Economic exposure

Results from contracted future cash flows foreign operations or investments

and requires policy decisions that are important to the budgeting process.

Low economic growth occurs due to appreciation in the currency m

relation to others, this leads to difficulty in retaining both local and
foreign customers who tend to search for favorable rates and thus
affecting the performance. However when the currency depreciates, it
attracts customers due to low prices of imported inputs which also
lowers the prices of final products.

2.6.0 Measures taken by Corporations to manage foreign exchange

rate fluctuations in Uganda.

Foreign exchange rate fluctuations can be managed in vanous ways. This

section discusses the techniques used for hedging against it.

Hedging can be defined as actions taken to change the exposed position

of a company in one currency or multiple currencies, (Prindi, 20 15). The
risk managers choice of the different types of hedging techniques uses
may be influenced by cost, taxes, effects on accounting conventions and
regulations. The different techniques are discussed below.

2.6.1 Payment Netting.

This system is used 1n international transactions by corporations in
Uganda and involves funds transfer between affiliates to only netted
amount. It requires firms to have a centralized organization <?f its cash
management. There are basically two forms of payment netting. These

18
includes bilateral and multilateral netting. Bilateral netting the transfer of a
netted amount between two affiliates. Multilateral netting involves
transfer of a netted amount between three or more affiliates. They use
payment netting to reduce physical flow of funds from one subsidiary to
another. As a result, measureable cost such of purchasing foreign
exchange, the opportunity cost of float (time in transfer) and other cost
are minimized or eliminated.

2.6.2 Prepayments
This method of payment requires the importer to pay the exporter in full
before shipment is made (Hill, 2015). Payment is always made in form
of international wire transfer to the exporters account or foreign bank
draft. This method affords the supplier the greatest degree of protection
and its normally requested of first time-buyers whose credit worthiness
is unknown or whose country are in financial difficulty. If currency is
thought to appreciate, then payment enables a corporation to pay at a
lower rate. If the future rate finally depreciates the firm is worse than
it had done nothing. This method Imposes a big risk to the importer as
he/she depends totally on the integrity of the exporter but offers
greatest protection for exporters because no credit extension is required.
The primary disadvantage of prepayment IS that it can limit the
exporters sales potentials (Dennis 2014).

2.6.3 Leading and Lagging

A lead strategy involves attempting to collect foreign currency receivable
early when foreign currency is expected to depreciate and paying foreign
currency payables before they are due when a currency is expected to
appreciate. A lag strategy on involves delaying collection of foreign
currency receivables if that currency is expected to appreciate and
delaying payables if the currency is expected to depreciate (Hill 20 15).

Leading and Lagging involves accelerating payments from weak currency

countries to strong currency countries. However leading and lagging is a
19
zero-sum game, that Is, while one party benefits, the other the
counterpart loses. Thus the benefit gained from taking advantage of
exchange rates may be outweighed by the cost of losing business due to
zero sum nature of this method. The practice of leading and lagging has
developed as one of the many methods of hedging against adverse
effects of foreign exchange rate fluctuations in Uganda by international
corporations.

2.6.4 Hedging with derivatives

Hedging includes all acts aimed at reducing uncertainty about future
(unknown) price movements in a commodity, financial security or foreign
currency. Understanding forward or futures sales or purchases of the
commodity, security or currency can be done in Over The Counter (OTC)
forward or in organized futures market. As an alternative to speculation,
many financial managers are turning to hedging strategies and using
derivatives to reduce foreign currency risk. Previous studies have a
widespread use of derivatives among Ugandan International Corporations
in managing their risk including long run exchange rate exposures (Jaliv
and et al., 2014, Bradley and Moles, 2015).

2.6.5 Forward and Future contracts

A forward contract involves a commitment to trade a specified item at a
specified price at a future date. It is a contract made today for delivery
assets at a pre-specified time in the future at a price agreed upon
today. No money changes hand until the expiry time.

future contract is a special type of contract with specialized delivery

date and sizes that would allow trading on an exchange. A system
managing requirements Is designed to protect both parties against
default. Instead of the parties realizing profits or loss at the expiry date.
Futures are evaluated every day and margin payments are made across
the lifetime of the contract. Forward and future contracts are relatively
similar foreign exchange rate instruments. Both are agreements that
20
binds two parties to exchange currencies at a fixed exchange rate at a
future date. Essentially both contracts offers the benefits of securing
cash flows on imminent transactions (Ricci and Morrison, 20 16)

2.6.6 Currency Option

A currency option gives the right but not obligation to buy or sell a
specific currency at a specific price within a specific period of time.
While American option can be exercised in whole or in part at any time
up to the expiration, European option can be exercised only at
expiration. Currency options provides a number of advantages.

It is used to hedge against foreign exchange rate fluctuations In Uganda

from import or export of goods. Secondly, it can be used to hedge
against foreign exchange rate fluctuations arising from investors or
funding In any currency. Finally, options offers every high degree of
gearing or leverage, which makes them attractive for speculative purpose
too (Cowdell, 2015).

2.6. 7 Currency Swaps.

A typical example of currency swap IS an agreement between two parties
to exchange two currencies at the spot or current exchange rate with
the agreement that they will reverse the exchange rate that prevailed at
the time of initial exchange (Tygerson, 2015). Currency swaps requires
the party receiving the currency with a higher interest rate m that
country's currency to pay interest rate to that counter party at a rate
that represents the interest rate differentials between the two countries.

Currency swaps provides an opportunity for customers to balance

currency resources in situations where there are excess funds m one
currency and shortage of funds In another (Evans and Martha,
2014)Madura and McCarthy 2015) indicates that currency swaps may be
too sophisticated or limiting to most corporations in Uganda and often
requires extensive documentation.

21
2. 7 Factors that affect the performance of Corporations besides. Foreign
Exchange Rate fluctuations.
Countries where corporations operate may set come barriers such as levels of
local content used in manufacturing methods, service delivery and technologies
used in production as well as percentage of foreign ownership of local
corporations.

Political climate such as insurgencies and instabilities have an effect on the

performance of corporations and in the setting up commercial presences due to
unstable conditions, for instance Gulu district in recent years was really
unsecured by the Lord Resistance Army and this also affected the
operations of JSFB

Poor market research undertaken by corporations, this is crucial and should

be continuous and repetitive. It analyzes the environments opportunities and
threats while comparing them to the company's weaknesses and strengths.

Macro-economic factors such as interest rate, inflation rate and government

policy related variables such as monetary policy changes and government
budget deficits also affects corporation's performances alongside exchange
rates fluctuations.

In isolation foreign exchange exercises a significant influence on commercial

relations as a pricing mechanism affecting every international transaction.
Exchange rates fluctuations can affect the course of economic activity to the
point that a sense of urgency is reached when dealing with volatile markets
(Richard 20 15).

Summary of key issues

Macro-economic factors such as inflation rates, interest's rates and

governmental decisions are the major causes of fluctuations in foreign
exchange rates. However, monetary regimes, Dollarization, speculators who are

22
market participators, BOT, economic growth and also health lead to foreign
fluctuations.

Corporations perform well when research is carried out on the new market to
be entered. If the parent company expands and performs well, it makes it
easier for international subsidiaries to succeed

Foreign exchange rate fluctuations are a major concern to corporations

because it affects their performance in the international market. But it is not
the only determinant of their performance.

23
 CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction
This chapter presents the methodology which was used in the study; it was
divided into ten sections: the research design. Area and population of the
study, Sample framework, sample procedure, methods for collection, sample
size, sources of data, research instruments, methods of data analysis and
Ethical considerations.

3.1 Research design

The study used a quantitative and qualitative research design for the purpose
of making valid conclusions. Quantitative design which was classified in two
broad categories, that is: experimental and general survey design examined the
effects as an independent variable whereas qualitative design involved the use
of questions to obtain views from the respondents.

3.2 Area and population of' the study

The study was conducted in JSFB in Gulu district; specific attention made on
jet forex administration and clients. An assessment of the relationship between
foreign exchange rate fluctuation and performance of corporations was another
area of interest during the study.

3.3 Sample framework

The study population ranged from administrators of the forex bureau to the
clients within the respective departments of the organization.

3.3.1 Sample size

The respondents were randomly selected and categorized. They comprised of
both sexes but of different marital status and age groups and the study used
50 respondents. This was intended to get a variety of views and unbiased
response which made the study a reality. Also this sample size was selected
since, Sutton and David, (2() 04), state that a sample size should not be less

24
than 30. Beyond basic description it was difficult for the researcher to
undertake more complex statistical analysis, as most of these analyses require
a minimum sample of 30.

3.3.2 Sample procedure

The study used both random sampling and purposive sampling procedures.
Purposive sampling was used to select different activities in the area of
investigation in order to get the required data and information. Random
sampling was used because respondents had equal chances of being selected.

3.4 Methods for collection methods

3.4.1 Instruments

(i) Interviews

This involved face to face interaction between the researcher and the
participant through discussion. The interviews were in two ways, namely:
Structured interview in which the responses by the participants were brief and
specific. Unstructured interviews, where the responses took long, elaborate and
not specific, the interviews will be conducted in groups and with individuals.

The researcher carried out the interview using the interview guide because it
was the most appropriate method which was used to study the attitudes,
values, beliefs and motives of people. It also had an element of flexibility. These
persons were interviewed individually so as to get independent answers

(H) Questionnaire

This was the discussion In written form whereby the responses of the
participants were put on paper provided by the researcher, the questionnaire
were in two forms, namely:

Open-ended questionnaire in which the responses by the participants were

free according to their understanding.

25
The close-ended questionnaires in which responses were provided by the
researcher and the participants one of them accordingly, for example strongly
agree, agree or strongly disagree. The researcher left out questionnaires to
mainly the literate group. The researcher gave some two days to respondents to
study and fill the questionnaires. She requested the respondents to ask for
clarification where they did not understand.

3.4.2 Sources of Data

Data was collected from both primary and secondary sources:

(i) Primary this was got by designing questionnaires and using the same
questionnaires the researcher proceeded to the field and collected the data,
while in the field the researcher interviewed respondents so that she can get
the required data.

(ii) Secondary

This data was got by extracting information regarding foreign exchange rate
fluctuations and performance of corporations by reading newspapers, journals,
text books plus the already existing work on internet and magazines.

3.4.3 Reliability and validity

In order to ensure and maintain a high level of reliability and validity in this
study, the researcher did the following:

Questionnaires were pre-tested. Ambiguous questions were made clear and

irrelevant questions were deleted.

The researcher used accurate questions which are open ended in nature by use
of questionnaires from the managers, accountants and tellers. The questions
set had enough space to give appropriate responses. Close ended questions
were also used by the researcher.

26
 .... · -

3.5 Data processing

3.5.1 Editing and spot checking

The researcher used edit and spot check during and after each interview with
the respondents.

This ensured that information given was logical, accurate and consistent.
Obvious errors and omissions were corrected to ensure accuracy, uniformity
and completeness so as to facilitate coding.

3.5.2 Coding
This ensured that all answers obtained from various respondents were given
codes and classified into meaningful forms for better analysis.

3.6 Data analysis

The data tilled in the questionnaires were copied and analyzed by tallying it
and tabling it in a frequency tables identifying how often certain responses
occurred and later evaluation was done. The information was later .recorded in
terms of percentages.

The recorded data was later edited and interpreted which ensured uniformity,
legibility and consistence. Also, interview results will be were coded on
frequency tables and then calculated in terms of percentages and presented in
this study.

3. 7 Ethical Considerations
After the approval of the proposal by the responsible authority, the researcher
got an introductory letter from the Faculty to progress to the field for data
collection. The researcher presented the letter to the concerned officials at the
company who assisted her to make sampling frames with the help of other
relevant respondents.

It was important during the process of research for the researcher to

understand that participation was voluntary; participants were free to refuse to
answer any question and could with draw at any time.

27
Another important consideration, involved getting the informed consent of
those going to be met during the research process, which involved interviews
and observations bearing in mind that the area hears conflict.

Accuracy and honesty during the research process was very important for
academic research to proceed. The researcher treated the project with utmost
care, in that there was no temptation to cheat and generate research results,
since it jeopardized the conception of research.

Personal confidentiality and privacy was very important since the thesis was
public. If individuals had been used to provide information, it was important
for their privacy to be respected. If private information was accessed then
confidentiality was maintained (Stephen, p. 2002).

28
 CHAPTER FOUR

PRESENTATION AND DISCUSSION OF FINDINGS

4.0 Introduction
This chapter presents the discussions and presentation of findings of key
issues from theoretical and empirical literature, the comparisons and contrasts
of findings and brings our new inferences and insights on the study variables.

4.1 Background Characteristics of the respondents

The Background information of the respondents was important because they
comprised of both sexes hut of different marital statuses and age groups from
various settings. This was intended in order to get a variety of views and
unbiased responses which made the study a reality. The respondents were
divided into the administrative and general staff groups. The findings are
shown in the figures below.

Table 1: 4.1: Classification of respondents by Resignation

Age bracket Frequency Percentage%
Accountants 02 4
Managers 02 4
Tellers 05 10
Internal auditors 02 4
Customers 39 78%
Total 50 100
Source: Primary data 2016

Table 4.1 shows that the biggest percentage of the interviewees were in
customers with a representation of 78 %( considered due to having varied
information),then followed by tellers with a representation of 10%,managers
with a representation of 4% similar to those of internal auditors and

29
accountants. This implies that that the information was g1ven by the right
respondents.

Table 2: 4.2: Respondents' level of education

Education Level Frequency Percentage%
Degree 15 30
Diploma 07 14
Other tertiary 25 50
Secondary school level 03 06
Total 50 100
Source: Primary data 2016

From table 4.2 above, the biggest percentage of respondents, completed tertiary
institutions as represented by 50% of the respondents, then 30% of the
respondents held bachelors' degrees in different fields followed by 14% Diploma
holders the least 06% of the respondents completed secondary school level.
This shows that the biggest percentage of the respondents have attained
reasonable education and can appreciate the topic of study therefore making
their responses reliable.

Table 3: 4.3: Number of years of service of respondents at JSFB

Years of service Frequency Percentage%
0-5 20 40
6-10 15 30
10-15 10 20
16 and above 05 10
Total 50 100
Source: Primary Data 2016

From table 4.3 above, it was found out that the biggest percentage of the
respondents had worked with the forex bureau for 5 years as represented by
40% whereas 30% shows employees who had worked with the forex bureau for

30
the period between 6-10 years, 20% represents employees who have worked for
a period between 10-15 years and the least percentage (10%) represents
workers who had worked with the forex bureau for the period between 10 years
and above, implying that they have been in service for a long time, thus they
are experienced, and could provide reliable information.

Table 4:4.4 Respondents' marital status

Marital Status Frequency Percentage%
Married 20 40
Single 18 36
Separated 10 20
Living with partner 02 04
Total 50 100
Source: Primary data 2016

From table 4.4 above, an assessment of the respondents' marital status was as
follows the biggest percentage of the respondents were found to be married as
shown by 40% where as 36% of the respondents reported to be single, then
04% of them attributed to be living with partner they are married lastly 20% of
the respondents appeared to be separated from their spouses as illustrated in
table 4 above.

31
Table 5: 5.5 Respondents' religion

30

25

>
u
20
r::
~
C"
15
Q)

J: 10
5

Yes Moslem Adventist Protestant

Religion

Source: Primary data 2016

During the field study, it was found out that majority of the respondents were
Protestants making 30% of the respondents, 20% of the respondents were
Moslems and 15% were Adventists and lastly the Roman Catholics which were
revealed by 25% of the respondents in figure 5 above.

4.2 Causes of foreign exchange rate fluctuations

4.2.1 Varying amounts of currency in circulation contributes to

foreign exchange rate fluctuations

40 respondents representing a percentage of 80 % agreed with the statement

that foreign exchange rate fluctuations is brought about by varying amounts of
currency in circulation whereas 10 respondents representing 20% replied no.
a conclusion was made that the varying currencies in circulation led to foreign
exchange rate fluctuation as shown below.

32
Figure 1: Respondents view on varying amounts of currency in circulation

no

• Seriesl

yes

0% 20% 40% 60% 80%

Source: Primary Data 2016

4.2.2 Bank attempts to regulate inventories

When asked their opinion on whether bank attempts to regulate inventories

contributes to foreign exchange rate fluctuations, 40 respondents representing
80% said yes, 5 representing 10% said no similar to those who were not sure
about the question. A conclusion was made that bank attempt to regulate
inventories contributes to the fluctuation of currencies as shown below.

33
Figure 2: Respondents view on bank attempts to regulate inventories

•ves
•no
not sure

Source: Primary data 2016

4.2.3 Economic forces of demand and supply

When asked their view on whether economic forces of demand and supply
contribute to currency fluctuation, 45 respondents representing 90% said yes
while the rest 5 representing 10% replied no which implies that economic
forces of demand and supply contribute to currency fluctuation.

Figure 3: respondents view on economic forces of demand and supply

•ves
•no
not sure

Source: Primary Data 2016

34
4.2.4 Lack of a well-functioning foreign exchange rate management
system

When asked about whether lack of a well-functioning foreign exchange rate

management system contributes to currency fluctuation 48 respondents
representing 96% agreed with the statement, while 2 respondents representing
4% did not agree with the statement. Therefore a conclusion was made that
lack of a well-functioning foreign exchange rate management system
contributes greatly to currency fluctuation as illustrated below.
Figure 4: Respondents view on lack of a well-functioning foreign exchange
rate management system

. 4%>%

11 yes

II no

II not sure

Source: Primary Data 2016

4.3: Performance levels of corporations

4.3.1 What are the performance levels of corporations in Uganda?

When asked about the performance levels of corporations in Uganda, 8
respondents representing 16% said that External knowledge of foreign markets
that lead to pre-occupation of policy makers on corporations and this helps to
stimulate technological transfer from local firms to foreign market firms, the
percentage became constant on all options implying that respondents were in
agreement with all the stated performance levels.

35
4.4 Relationship between foreign currency exchange rate fluctuations and
corporation performances
When asked about their view on the relationship between foreign exchange rate
fluctuation and corporation performances,35 respondents representing 70%
responded that there is an extreme relationship, 10 respondents representing
20% said that there is a good relationship,2 respondents representing 4% said
that there is a fair relationship, similar to two respondents who said that there
is an extremely bad relationship whereas 1 respondent representing 2 %
replied that there is a bad relationship as illustrated below. A conclusion was
made that there is an extreme relationship between foreign currency exchange
rate fluctuations and corporation performances.

Figure 5: Respondents view on the relationship between foreign currency

exchange rate fluctuations and corporation performance

.--- ---·-·-----·-··-·------·--·--·---····-·------·--·--···········-·---··-----..-----·---......................--.....

80%

60%

40%

20%

• Seriesl
Seriesl

Source: Primary Data 2016

4.4.2 Do you think exchange rates fluctuations affect a company's prices

which in turn affect all other operations of the corporations?

36
When asked whether exchange rate fluctuations affect a company's prices, they
all replied that yes and said that it in fact affects all other operations of the
international co-operations.

4.4.3 Do you think exchange rate fluctuations affect the domestic value of
assets, liabilities and operating incomes of corporations?
When asked about whether exchange rate fluctuations affect the domestic
value of assets, liabilities and operating incomes of IC's 45 respondents
representing 90% said that yes,5 repenting 10% said that no, and 0
respondents were not sure. A conclusion was made that exchange rate
fluctuations affect domestic value of assets, liabilities and operating incomes of
corporations.

Figure 6: Respondents view on whether exchange rate fluctuations affect

the domestic value of assets, liabilities and operating incomes of
corporation's

10% ayes
0% 0% ano
not sure

Source: Primary Data 2016

4.4.4 Do you think the company has a risk of making great losses when
translating foreign currencies from foreign operations to domestic
currency for making balance sheet and income statements?
When asked about whether they thought the company had a risk of making
~reat losses when translating foreign currencies from foreign operations to
iomestic currency for making balance sheet and income statements,40
~espondents representing 80% said that yes, 5 representing 10 said no while 5

37
representing 10% were not sure. Therefore a conclusion was made that the
company has a risk of making great losses when translating foreign currencies
from foreign operations to domestic currency for making balance sheet and
income statements.

Figure 7: respondents view on whether the company has a risk of making

great losses when translating foreign currencies from foreign operations
to domestic currency for making balance sheet and income statements

.---······-·--·-··---------·----·---·-----·-··---·--·-·---·-·--···-······-··- ··-···········..··-·-······ ···········---······-·-·-··-------·- ··-···················-··.. -·....

not sure

Source: Primary Data 2016

4.4.5 Is performance evaluation, production decisions, pricing and

budgeting complicated by fluctuations in foreign currency exchange rates

When asked whether performance evaluation, production decisions, pncmg

and budgeting are complicated by fluctuations in foreign currency exchange
rates 44 respondents representing 88% replied that yes,4 respondents
representing 8% said that no, whereas 2 respondents representing 4% were not
sure. A conclusion was made that performance evaluation, production

38
decisions, pnc1ng and budgeting are complicated by fluctuations 1n foreign
currency exchange rates.

Figure 8: Respondents view on whether performance evaluation,

production decisions, pricing and budgeting complicated by fluctuations
in foreign currency exchange rates
··-------·-------·------ ----··----·-··--··

yes

• no
not sure

Source: Primary Data 2016

39
 CHAPTER FIVE

CONCLUSIONS AND RECOMMENDATIONS

5.0Introduction

This chapter presents conclusions and recommendations basing on

literature relating to the variables and the analysis of the findings in
previous chapters.

5.1 Conclusions
From the findings, I made the following conclusions.

Exchange rate fluctuations is a technical indicator of economic performance

in the economy. As long as corporations continue to participate in
international trade and economies .liberalize trade, foreign exchange rate
will continue to fluctuate and attract the attentions of corporations. It
has continued to be persistent despite all technical advancements and
globalization.

Corporations expand their activities in other countries to take advantage of

new opportunities, taking into consideration the economic relationship
between external market and third parties.

For an corporations to perform well in the international market, it has

to first perform well in the parent company.

I concluded that although an exchange rate has great effect on the

performance of corporations, it cannot be viewed alone as the only
determinant of performance of international corporations.

Furthermore is that once a commitment is made to long term economic

activity in a particular market, management of exchange risk should

40
transfer from focusing on translation exposure. External market can then
be assessed according to economic risk factors like exchange value
variations attributed to foreign market environments.

5.2 Recommendations
In light of the above conclusions, I recommends the following;

Since management can control shifting exchange rates, the effect of

fluctuations can be removed from the budget control process by setting aside
the variations for the budget that are due to exchange between the budgeted
and actual exchange rates.

A different exchange rate would be required for each revenue and expense
category to remove all the effects of foreign rates changes. This however may be
cumbersome and time consuming.

Corporate financial executives should develop a hedging policy that identifies

the minimum amount of cash flow to be hedged, the hedging methods to
employ and minimum amount of cash flow to be hedged, and the conditions for
using such methods. Managers who plan cash flows should identify
transactions that require hedging during the upcoming budgetary period since
hedging involves additional transactions and expenses that must be recognized
in the budgeting process.

IBM's method of using derivatives to limit the effects of foreign exchange rates
D.uctuation and exposure on financial results can be copied.

Corporation can select the segment markets that minimize the effects of
foreign exchange rate fluctuations while maximizing the long term cash flow by
raising capital in foreign country's currencies instead of using capital provided
by the parent corporation's home currency, locating plants in countries that
lend to minimize the negative consequences of exchange rates changes, develop
mix of sales strategy for both currency devaluation and revaluation and shift

41
production among plants to allocate where the currency has devalued therefore
achieve low production costs.

5.3 Areas for further Results

The various foreign exchange rates regimes and how they impact on
International Corporation's performance in Uganda.

Foreign exchange rates markets and how international corporations in Uganda

participate in them.

How other factors such as government intervention, interest rates and inflation
rates affect international corporations in Uganda.

42
 REFERENCES
Ahmed El-Masty, Omeya AbdelSalam (2015). Managerial Finance; Volume 33,
Issue 9, 2015, Research paper.

Ameron International2013 Report.

Ameron International Report 2015.

Business Times (Malaysia) 03 February 20 14.

Jet Set Forex Bureau- Gulu Municipality, 2015 Annual Financial Report.

Craig Burnside, Martin Eichenbaum and Sergio Rebelo (2014).

Crimson Business Magazine 29th April 2015, A Crimson business Publication.

Dr. Charles W. L. Hill (2010) International Business, post Script 2014, Third
Edition, Me Graw-Hill Companies, Inc.

Forex on-line, Manual for Successful Trading 2015.

James D. Daniels and Lee H. Radebough (1998) International Business

Environments and Operations 8th Edition, Pearson Education Inc.

Ken Milani and Juan Rivera (2014) Management Accounting Quarterly.

Jameson International Forex Bureau, 2014 Jameson International Forex

corporation on line Casino and on-line news July 2014 Archive.

Maurice Obsdtfeld, 2014. The Global Capital Market: Benefactor or Menace

Centre for International and Development Economics research, working paper
senes.

Peter Neary, (2014) Foreign Investment and the Single Market, 2nd Market
8dition, New York.

Richard Lawrence (1986), currency management, Florin Corn, Valore

[nternational.

43
Salvador Boriors, Holger George (UCD) (2015), Multinational Enterprises and
New Trade Theory, Himalaya Publishing House.

Vern Terpstra and Ravi Sarathy (2000), International Marketing, 8th

Edition.The Dryden Press Harcourt College Publishers.

44
 APPENDICES

APPENDIX I: RESEARCH QUESTIONNAIRE

Dear Sir/ Madam,

My name is Katana Allen, a student of Kampala International University

pursuing Bachelor's Degree of Business Administration majoring in Finance and
Accounting. I am currently conducting a research study on topic titled,
"Currency Exchange Rate Fluctuations and Performance of Corporations in
Uganda; A Case Study of Jet Set Forex Bureau" I kindly request you to spare
some time and fill this questionnaire. The information given will be used for
academic purposes only and will be treated with utmost confidentiality. Your
cooperation will be highly appreciated.

SECTION PART A: BIO DATA TICK THE RIGHT ANSWER

(Tick the correct box)

1. Designation

(a) Manager 0 (b) Accountant D (c) Internal Auditor D

(d) Teller D (e) Customer D (f) Support Staff D
(g) Others specify ................................................................................. .

2. Gender

(a) Male D (b) FemaleD

3. Age bracket

(a) 20-29years D b) 30-39 years

D
c) 40-49years D d) 50years and above D

4. Highest level of education.

(a) Primary [ ] (b) Secondary D

(c) Tertiary D (cl) University [-l

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[f) Others specify) .................................... .

5. How many years have you worked in this company?

(a) 1-5 D (b) 6-1o D (c) 11 and above D

5. What is your marital status?

(a) SingleD (b) Married D (c) Widowed D (d) Divorced D

7. What is your religion? ................................................... .

(a) Catholic D (b) Protestant D (c) Moslem D (d) SDA D

(e) Others (specify) ............................. ·................ .

SECTION B: CAUSES OF FOREIGN EXCHANGE RATE FLUCTUATIONS.

(Please tick yes if you agree and no if you disagree)

8. Varying amounts of currency in circulation contribute to foreign. exchange

rate fluctuations?

Yes D No D
9. Bank attempts to regulate the inventories?

a. Yes D b.No D Not sure D

10. Economic forces of demand and supply?

A. Yes D B.No D C. Not sure D

11. Lack of a well-functioning foreign exchange rate management system

A. Yes D B. NoD C. Not sure D

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