Abstract:
The main aim of this study was to examine the effects of exchange rate volatility on the financial performance of private commercial banks in Ethiopia. To achieve this objective, a descriptive and explanatory survey design was employed, utilizing quantitative data. The target population of the study 28 licensed private commercial banks registered with the National Bank of Ethiopia. Purposive sampling techniques were used to select a sample of 8 banks from the total population. Data collection involved secondary sources, which were analyzed quantitatively. Descriptive and inferential statistical methods, including regression analysis and correlations, were utilized for analysis using SPSS version 20. The study found a significant relationship between exchange rate, inflation, GDP, and financial performance. Specifically, there is a negative correlation between exchange rate and inflation with return on assets (ROA), while GDP shows a positive correlation with ROA. The regression analysis confirmed that exchange rate, inflation, and GDP significantly affect return on assets. In graceful of these findings, it is recommended that private commercial banks enhance their risk management strategies to effectively mitigate the effects of exchange rate volatility. This can be achieved through robust practices such as hedging and diversification. Additionally, assessments of financial performance should be conducted to ensure adaptability to changing economic conditions. Finally, collaboration with regulatory bodies is essential to promote policies that foster a more stable banking environment
