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FACTORS LEADING TO SLOW ADOPTION OF DERIVATIVES USE IN KENYA: A CASE OF COMMERCIAL BANKS IN KENYA


Ithai Julius Kamenchu

Meru University of Science & Technology


ABSTRACT

The innovation in financial risk management has led to development of derivatives markets in most of the developed economies. Use of these derivatives aids a firm in hedging and speculation which further impacts on the shareholders wealth maximization. Currently, there is no organized exchange for financial derivatives in Kenya. However, it is believed that over the counter (OTC) trading is engaged by many firms. This study targeted Commercial Banks in Kenya. A census survey was conducted on the 45 banks which were registered by Central Bank as commercial banks. Out of the 45 questionnaires administered, 33 of them were received and analyzed for results. Five factors were used to analyze the study: Regulatory framework, Trade liberation, Savings/investment ratio, Macro-economic factors and Technological factors. Data collected was used to develop a regression model using SPSS. From the findings, over 80% of financial institutions in Kenya use financial derivatives for hedging, speculation or both. The main factors hindering use of derivatives include legal framework and trade liberation. This study was limited to Kenyan Commercial Banks further research should be conducted on non-financial firms to establish the findings.


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