RELATIONSHIP BETWEEN OIL PRICES, EXCHANGE RATES AND MAIZE PRICES IN KENYA
DOI:
https://doi.org/10.47941/ijf.44Keywords:
Relationship, oil price, Exchange rates and maize prices in KenyaAbstract
Purpose: The purpose of this study was to determine the Relationship between oil prices, Exchange rates and maize prices in Kenya
Methodology: The study adopted exploratory and descriptive design. Exploratory research was used to understand the relationships among the variables of this research. Descriptive research was used to understand the current situation. The population used for the 3 variables are; Abu Dhabi National Oil Corporation (ADNOC) crude oil prices for oil prices, Central Bank of Kenya for KES/USD exchange rates and Food Agricultural Organization (FAO) Nairobi (due to missing data for Eldoret) wholesale maize prices per metric ton for maize prices.
Results: The study findings revealed that these three markets namely the crude oil market, the foreign exchange market and the commodity market have separate risk management dynamics and should be administered individually. Central Bank of Kenya prudential guidelines (2008) on risk management that came into effect this year, mandate financial institutions to use derivatives to manage risk by using different kinds of instruments like foreign exchange derivatives interest rate derivatives, commodity based derivatives etc. though implementation has not started. However, current risk management strategies in the financial market allow for hedging against adverse movement in foreign exchange market. This would drastically reduce the costs of imports especially petroleum products and its derivatives that go into production.
Policy recommendation: The study recommended creation of a commodity exchange that would add value to commercial participants such as farmers and millers with benefits accruing to consumers. This could prove difficult in the beginning especially in policy guidelines and implementation but would prove worthwhile in the end. Some of the steps taken towards a fully-fledged commodity exchange is the introduction of the Warehouse Receipt System (WRS). This allows farmers to concentrate on farming as they store their produce for future selling and also as security for loans in commercial banks.Procurement policies should be reviewed especially in regards to the oil sector. Although the government through the Kenya Gazette, 2012 has granted a 30% import quota of refined petroleum products to oil marketer National Oil Corporation of Kenya and 100% import quota of crude oil to Kenya Petroleum Refinery Limited (KPRL) hence giving them volumes needed to hedge in the international market, steps should be taken to widen the scope of players to involve the private sector to participate.
Keywords: Relationship, oil price, Exchange rates and maize prices in Kenya
Purpose: The purpose of this study was to determine the Relationship between oil prices, Exchange rates and maize prices in Kenya
Methodology: The study adopted exploratory and descriptive design. Exploratory research was used to understand the relationships among the variables of this research. Descriptive research was used to understand the current situation. The population used for the 3 variables are; Abu Dhabi National Oil Corporation (ADNOC) crude oil prices for oil prices, Central Bank of Kenya for KES/USD exchange rates and Food Agricultural Organization (FAO) Nairobi (due to missing data for Eldoret) wholesale maize prices per metric ton for maize prices.
Results: The study findings revealed that these three markets namely the crude oil market, the foreign exchange market and the commodity market have separate risk management dynamics and should be administered individually. Central Bank of Kenya prudential guidelines (2008) on risk management that came into effect this year, mandate financial institutions to use derivatives to manage risk by using different kinds of instruments like foreign exchange derivatives interest rate derivatives, commodity based derivatives etc. though implementation has not started. However, current risk management strategies in the financial market allow for hedging against adverse movement in foreign exchange market. This would drastically reduce the costs of imports especially petroleum products and its derivatives that go into production.
Policy recommendation: The study recommended creation of a commodity exchange that would add value to commercial participants such as farmers and millers with benefits accruing to consumers. This could prove difficult in the beginning especially in policy guidelines and implementation but would prove worthwhile in the end. Some of the steps taken towards a fully-fledged commodity exchange is the introduction of the Warehouse Receipt System (WRS). This allows farmers to concentrate on farming as they store their produce for future selling and also as security for loans in commercial banks.Procurement policies should be reviewed especially in regards to the oil sector. Although the government through the Kenya Gazette, 2012 has granted a 30% import quota of refined petroleum products to oil marketer National Oil Corporation of Kenya and 100% import quota of crude oil to Kenya Petroleum Refinery Limited (KPRL) hence giving them volumes needed to hedge in the international market, steps should be taken to widen the scope of players to involve the private sector to participate.
Keywords: Relationship, oil price, Exchange rates and maize prices in Kenya
Purpose: The purpose of this study was to determine the Relationship between oil prices, Exchange rates and maize prices in Kenya
Methodology: The study adopted exploratory and descriptive design. Exploratory research was used to understand the relationships among the variables of this research. Descriptive research was used to understand the current situation. The population used for the 3 variables are; Abu Dhabi National Oil Corporation (ADNOC) crude oil prices for oil prices, Central Bank of Kenya for KES/USD exchange rates and Food Agricultural Organization (FAO) Nairobi (due to missing data for Eldoret) wholesale maize prices per metric ton for maize prices.
Results: The study findings revealed that these three markets namely the crude oil market, the foreign exchange market and the commodity market have separate risk management dynamics and should be administered individually. Central Bank of Kenya prudential guidelines (2008) on risk management that came into effect this year, mandate financial institutions to use derivatives to manage risk by using different kinds of instruments like foreign exchange derivatives interest rate derivatives, commodity based derivatives etc. though implementation has not started. However, current risk management strategies in the financial market allow for hedging against adverse movement in foreign exchange market. This would drastically reduce the costs of imports especially petroleum products and its derivatives that go into production.
Policy recommendation: The study recommended creation of a commodity exchange that would add value to commercial participants such as farmers and millers with benefits accruing to consumers. This could prove difficult in the beginning especially in policy guidelines and implementation but would prove worthwhile in the end. Some of the steps taken towards a fully-fledged commodity exchange is the introduction of the Warehouse Receipt System (WRS). This allows farmers to concentrate on farming as they store their produce for future selling and also as security for loans in commercial banks.Procurement policies should be reviewed especially in regards to the oil sector. Although the government through the Kenya Gazette, 2012 has granted a 30% import quota of refined petroleum products to oil marketer National Oil Corporation of Kenya and 100% import quota of crude oil to Kenya Petroleum Refinery Limited (KPRL) hence giving them volumes needed to hedge in the international market, steps should be taken to widen the scope of players to involve the private sector to participate.
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