Assessment of Foreign Exchange Risk Management Practice of Selected Private Banks in Ethiopia

Abstract

This study was conducted to examine foreign exchange risk management practices at selected private banks in Ethiopia. The study used a descriptive research design. The researcher used questionnaire to gather the primary data from the staffs of Awash bank, Dashen bank and Abyssinia bank who are currently working at international banking department, Finance department and Risk and compliance department. The study used simple random sampling technique to distribute the questionnaires to the target population. The researcher distributed 266 questionnaires and the analysis was made based on 241(90.60%) response rates. The result of the study showed that the greatest number of the respondents agreed that the top managements of the selected private banks have played a great role in foreign exchange risk management practice. Similarly, significant numbers of respondents approved that the foreign exchange risk management policy and procedures was practiced well. Moreover, the respondents had good level agreement on the internal control system practice and management information system practice related to foreign exchange risk management. Further, the study concludes lack of developing an effective system of reporting to the board, lack of placing an acceptable level of internal control system, improper follow upping, and lack of devoting necessary resources are identified as the weak practices of foreign exchange risk management at selected private banks in Ethiopia. Finally, among others the study recommended that the management of the selected private banks have to assign dedicated work unit/personnel to acquire and keep any changes on the foreign exchange risk management policies and procedures in a timely manner and better to allocate the necessary resources to improve foreign exchange risk management practices.