This study examines the influence of foreign exchange transaction risk management on the financial performance of KCB Bank Limited, focusing on the period from 2015 to 2021. Foreign exchange fluctuations significantly affect commercial banks, impacting interest rates, loanable funds cost, and overall earnings. Banks employ derivatives like currency swaps, forwards, and options to mitigate these risks. Using data obtained from KCB Bank's annual reports, this cross-sectional study analyzes the correlation between the adoption of these derivatives and the bank's Return on Assets (ROA). The findings reveal a negative strong correlation between the use of currency swaps, forwards, and options and KCB Bank's ROA, suggesting a potential negative impact on financial performance.

The study investigates the relationship between foreign exchange transaction risk management and the financial performance of KCB Bank Limited. Businesses, especially those dealing in multiple currencies like commercial banks, face risks due to exchange rate fluctuations. This study focuses on how KCB Bank manages these risks using derivatives and the impact of these strategies on its financial performance.

The study collected cross-sectional data from KCB Bank's annual reports between 2015 and 2021. Descriptive statistics, correlation analysis, and regression analysis were employed to explore the relationship between the adoption of currency swaps, forwards, and options and the bank's ROA. The study also evaluated the degree of exposure of KCB Bank to foreign exchange transaction risk based on its financial position and cash flows.

The study revealed a weak negative correlation between the use of currency swaps, forwards, and options and KCB Bank's ROA. Regression analysis confirmed the insignificance of these derivatives in influencing the bank's financial performance during the study period. Despite employing these risk management strategies, KCB Bank did not experience significant improvements in its ROA.

Contrary to some past studies, this analysis found that the use of currency swaps, forwards, and options did not positively impact KCB Bank's financial performance. The findings emphasize the complexity of foreign exchange risk management in the banking sector and highlight the need for further research. Proper and detailed analysis of individual derivatives and their specific impact on financial performance is crucial for a comprehensive understanding of this relationship.