Effects of Financial Risks

The sugar industry plays a significant role in socio of its operations, faces a myriad of challenges as a result of financial risk exposure. With the liberalization o and free movement of financial assets, risk management through the use of derivatives has become a necessity and despite enormous benefits that can be derived from using derivatives to manage financial risks, Kenyan sugar firms have not embraced their use to full potential and there is lack of a thriving derivative market locally due to limited number of derivative instrument and lack of knowledge of existence of the instrument. This research examined the effects of financial risks on profitability interest rate risks and liquidity risks. Census research design was used where all the 48 finance officers of the 8 sugar firms registered by the Kenya sugar board were studied. Quest was analyzed using frequency counts, percentages, and mean while inferential analysis was done using Pearson correlation analysis. The study established that, a significant, negative correlation existed liquidity risk and firms profitability, r = rating and profitability r =- 0.689, P<0.01 and a strong, positive correlation also existed between firms ef risk management and profitability r = 0.714, P< 0.01. This indicates that as the firm manages its risks mor