EFFECT OF MARKET RESILIENCY LIQUIDITY DIMENSION ON INTEREST RATE RISK MANAGEMENT USING FINANCIAL DERIVATIVES IN KENYA

Mary Zeresh Otsyula

College of Human Resource and Development,

Jomo Kenyatta University of Agriculture and Technology

P. O. Box 62000, 00200 Nairobi, Kenya

Corresponding Author email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Dr. Florence. S Memba

College of Human Resource and Development,

Jomo Kenyatta University of Agriculture and Technology

P. O. Box 62000, 00200 Nairobi, Kenya

Dr. Willy Muturi

College of Human Resource and Development,

Jomo Kenyatta University of Agriculture and Technology

P. O. Box 62000, 00200 Nairobi, Kenya

CITATION: Otsyula, M., Z., Memba, F., S., Muturi, W. (2017) Effect Of Market Resiliency Liquidity Dimension On Interest Rate Risk Management Using Financial Derivatives In Kenya. International Journal of Economics and Finance. Vol. 6 (6) pp 39 – 59.

ABSTRACT

Kenya, through the Vision 2030, is geared to become an international financial center and to achieve this goal deepening of the bond market provides opportunities for investment in Kenya to introduce new Trading Platforms. Ongoing roll out of Derivatives/Commodities Futures Exchange with the goal of providing more financial products to facilitate growth in the Kenyan economy is being undertaken by the Capital Markets .Whereas there are several trading platforms available for trading of financial derivatives aimed at managing interest rate risk, the effect of market resiliency dimension on the interest rate risk management using financial derivatives in Kenya and how electronic trading platforms affect them is not clear. The purpose of this study was to carry out empirical test on the effect of market resiliency liquidity dimension on the interest rate risk management using financial derivatives in Kenya. The study population included all the Commercial Banks licensed by the Central Bank of Kenya. Primary Data was collected using questionnaires. The study findings indicated market resilience significantly affects interest rate risk management using financial derivatives in Kenya. The study recommends that commercial bank dealers who are designed to provide clients services that require principal risk taking, a function which is a vital element of market resilience during volatile events, should adopt increased use of electronic trading platforms like Bloomberg and Citivelocity in providing core services to support the real economy. Such diversity is a necessary and welcome development, and complements the role commercial banks and bank dealers will continue to play in effective market functioning thus affecting market liquidity.

Key Words: Market Resiliency Liquidity Dimension, Interest rate risk, financial derivatives, Commercial Banks, Kenya

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