Patrick Ngugi Karanja

Bio: Patrick Ngugi Karanja is an academic researcher. The author has contributed to research in topics: Foreign exchange risk & Currency. The author has co-authored 2 publications.

Effects of monetary and fiscal policies on variability of foreign exchange risk premium in Kenya

Abstract: nd December, 2013 The behavior of excess returns on foreign currency deposits remains one of the more puzzling issues of study in international finance. The study was guided by the following specific objectives: to assess the effect of fiscal policies on variability of foreign exchange risk premium; and to determine the effect of monetary policies on variability of foreign exchange risk premium. The population of the study comprised of the 204 players drawn from the banking sector players, the capital markets players, and the mainstream government fiscal planning system. Primary data was collected from a sample of 114 informants who were purposively selected. Secondary data was collected from the research department of Central Bank of Kenya and the Kenya National Bureau of Statistics. The study applied monthly observations on the short term rates (91-day T-Bill rate and the InterBank rate) and foreign exchange rates over the entire sample period of September 1999 to December 2012. The study applied the Stochastic Discount Factor (SDF) methodology. The multivariate GARCH-in-mean model was used, since it allows for a time-varying variance-covariance matrix. Quantitative data was analyzed using descriptive statistics. The qualitative data collected through interview guide was analyzed through content analysis.