Operational Risk Management and Financial Performance of Forex Bureaus in Nairobi County, Kenya

Forex bureaus function in an environment marked by various financial uncertainties that heavily influence their economic outcomes. In the modern era, these entities have encountered multiple incidents that have introduced financial challenges. The importance of establishing effective risk management approaches became evident following the downfall of major firms such as WorldCom and Enron, highlighting the necessity for businesses to safeguard themselves and their stakeholders from diverse financial dangers. This research sought to investigate various critical components of financial risk management within Forex bureaus. The main goals were to analyze how operational risk management affects the financial outcomes of Forex bureaus in Nairobi County, explore the role of credit risk management in shaping their financial results, evaluate the effects of liquidity risk management, and assess the impact of market risk management. The study was guided by four theoretical frameworks: Extreme Value Theory, Theory of Liquidity, Credit Theory, and Capital Market Theory. The target population consisted of 74 Forex bureaus, encompassing CEOs, Managing Directors, and middle management staff. To ensure a representative sample, the Yamane formula was used to determine a sample size of 210. The researcher utilized a stratified sampling technique. The research utilized a mix of both primary and secondary data gathering techniques. The evaluation process included an initial review, descriptive statistical analysis, and inferential methods such as correlation analysis and regression modeling. The results indicated a relationship between financial risk management practices and the financial performance of Forex bureaus in Nairobi County. It was evident that credit risk management impacts financial performance (β=0.321; p<0.05), liquidity risk influences financial performance (β=0.526; p<0.05), operational risk affects financial performance (β=0.122; p<0.05), and market risk also impacts financial performance (β=0.362; p<0.05). The study suggested that management should develop parameters to monitor and mitigate the adverse effects of unpredictability in the foreign exchange market.