- Title
- Exchange rate volatility and bank performance: the case of South Africa
- Creator
- Rozani, Zukiswa
- Subject
- Foreign exchange rates -- South Africa
- Subject
- Exchange rates -- South Africa
- Date Issued
- 2022-04
- Date
- 2022-04
- Type
- Master's theses
- Type
- text
- Identifier
- http://hdl.handle.net/10948/58156
- Identifier
- vital:58615
- Description
- The increasing financial liberalisation since the collapse of the Bretton Woods regime in the 1970s has made exchange rates in both developing and industrialised countries unpredictable. As a result, both researchers and policymakers have become increasingly interested in the consequences and causes of exchange rate volatility. Fluctuations in foreign exchange rates may be a significant source of concern for banking institutions. In the worst case, significant losses in foreign exchange could result in financial crises, apart from causing significant constraints on the revenue growth of banks. This research study sought to investigate the volatility of exchange rates in South Africa and how this volatility affects commercial banks’ performance. The study was guided by both theoretical and empirical literature to achieve its main objective. This investigation is rooted in two theories: The Purchasing Power Parity theory, and the International Fishers Effect theory. The purchasing power parity (PPP) theory expresses that, homogeneous goods, in various countries, cost equally in similar countries when estimated in terms of the same currency (Brunnermeier and Pedersen, 2009). The theory postulates that if two homogeneous goods are traded at various costs in various countries, the arbitrage opportunity would be exploited, which prompts convergence of the deviations from Purchasing Power Parity towards equilibrium without arbitrage costs. The International Fisher Effect stipulates that the distinction in returns between two countries is simply equivalent to the distinction in inflation rates (Ross, Westerfield, Jaffe, & Jordan, 2008). The theory proposes that foreign currencies with relatively high-interest rates would depreciate on grounds that the high nominal interest rates reflect anticipated inflation. The nominal interest rates would likewise fuse the risk of an investment (Majok, 2015). The research adopts two econometric models namely: The EGARCH technique in modelling volatility, and the NARDL method to investigate the relationship. Results from the NARDL model reveal the occurrence of a long-run relationship between exchange rate volatility and bank performance. However, the influence of exchange rate on bank performance varies, depending on the type of proxy employed to measure bank performance. Four commercial banks revealed evidence of cointegration among the variables in the model in the short run, and indicated the v | P a g e speed of adjustment in the short run towards the long run. Nedbank’s return on equity, however, has an insignificant short-run relationship. Therefore, the study recommends that management of banks should place a greater emphasis on assessing and overseeing economic exposure, and factoring this into strategies in decision making.
- Description
- Thesis (MA) -- Faculty of Business and Economic science, 2022
- Format
- computer
- Format
- online resource
- Format
- application/pdf
- Format
- 1 online resource (xi, 134 pages)
- Format
- Publisher
- Nelson Mandela University
- Publisher
- Faculty of Business and Economic science
- Language
- English
- Rights
- Nelson Mandela University
- Rights
- All Rights Reserved
- Rights
- Open Access
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NMU School for Economics, Development and Tourism
| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | SOURCE1 | Rozani, Z Confidential.pdf | 1 MB | Adobe Acrobat PDF | View Details Download |