Dollar and Shilling: How the Exchange Rate Affects Your US Shares

Cherono's share rose 10% in a year, and when she worked it out in shillings she had made almost nothing. Cherono is a clerk at a tea factory near Kericho, and she had put KES 30,000 of long term savings into US shares. The company had done well; the shilling had moved against her. Her careful choice of company had been right, and the result still disappointed her.

That is the part of the exchange rate and US shares that adverts rarely mention. A Kenyan investor in New York holds two things at once: a share priced in dollars, and dollars that are worth a changing number of shillings. Your result in shillings depends on both.

The currency side is part of knowing how to buy US shares from Kenya, and it is far easier to judge in plain numbers before you invest than to discover after. Below, Cherono's KES 30,000 is worked through nine possible outcomes, with the rate assumed and fees left out. You will also see what moves the shilling, what converting costs, and what you can do about the risk. None of it predicts the rate, because nobody can do that reliably.

Two prices, one result

When you buy a US share, three things happen: your shillings become dollars at today's rate, the dollars buy shares, and later the shares are sold for dollars which become shillings at that day's rate. Two of those steps involve the exchange rate, and only one involves the company. Cherono's year shows what happens when the two pull in different directions. So your shilling result depends on two things:

1. What happened to the share price in dollars.
2. What happened to the exchange rate between the day you bought and the day you sold.

If the shilling weakens (more shillings per dollar), each dollar converts back into more shillings, which helps you. If the shilling strengthens (fewer shillings per dollar), each dollar brings back fewer shillings, which hurts you. The share and the rate can also move together, which makes a good year better or a bad year worse. Nobody can reliably predict which way it will go, and share prices can fall too, so you can get back less than you put in.

Cherono's KES 30,000 in nine outcomes

Cherono bought when the rate was KES 129 to the dollar; this is an assumed figure for the example, not a forecast. Her KES 30,000 became about $232.56. The table shows what she would get back in shillings a year later under nine combinations. Fees are left out to keep the arithmetic clear.

Cherono's real year was the bottom left: the share rose 10%, the shilling strengthened to KES 118, and she ended up just 0.6% ahead. Her KES 30,000 came back as KES 30,186, only KES 186 more than she put in. In fact, at about KES 117.27 to the dollar, her 10% gain would have disappeared completely.

Look at the top left as well. A 10% fall in the share combined with a stronger shilling became a 17.7% loss. The right column shows the opposite case, where a weaker shilling turned the same 10% fall into a loss of only 2.3%. The currency can make a bad year worse, just as it can make a good year better.

What moves the shilling against the dollar

Many things affect the rate: what Kenya imports and exports, money sent home by Kenyans abroad, tourism, government debt payments, and decisions by central banks in Kenya and the US. These forces change over months and years, and they can surprise even professionals. No single one of them decides the rate on its own, which is part of why it is so hard to forecast.

The Central Bank of Kenya publishes indicative exchange rates each business day. Banks and forex bureaus use them as a guide, and the rate you actually get can differ. Look at the rate your platform uses on the day, not only the published one. The difference may look small on one day, but it applies to every shilling you convert.

Past movements do not promise future ones. A shilling that weakened for several years can strengthen, and the other way round. Cherono could not have known in advance that the shilling would strengthen to KES 118 during her year. Treat any confident prediction about the rate with the same doubt you would give a stock tip.

The cost of converting

Every conversion has a price, often hidden in the gap between the rate at which a platform buys dollars and the rate at which it sells them. Suppose, as an invented example, you buy dollars at KES 130 and later sell them at KES 128, with the share price unchanged. Your KES 30,000 would come back as about KES 29,538.46, a loss of about KES 461.54, or 1.54%, from conversion alone. That is why moving money in and out often is costly, and why it pays to read the fee table before you start.

What a Kenyan investor can do about currency risk

You cannot control the rate, but you can control how much it matters to you. Most of the tools are habits rather than clever moves, and they work best when set up before you invest. Each one either gives you more time, spreads your conversions out, or keeps your daily needs away from the dollar. These are the main ones:

• Keep a long horizon. Money you may need soon could be forced out on a day when the rate is against you. With years to wait, you choose when to sell.
• Buy in steps. Investing a fixed amount each month buys dollars at many different rates, so no single day's rate decides everything.
• Avoid frequent conversions. Each round trip costs something.
• Keep shilling needs in shillings. Money for rent, fees and emergencies should never depend on the dollar.
• Think about what you will spend. If you will one day spend money in dollars, for example on fees abroad, holding dollar shares can match that need. If all your future spending is in shillings, accept that the rate is part of your risk.

Writing it into your plan

Add one line to your investment plan: "I accept that the shilling can move against me, and that a good year for the share can be a flat year for me." Cherono's year is exactly the case that line describes, a 10% rise in the share and a result of just 0.6% in shillings. Saying it in advance makes it much easier to stay calm when it happens.

Dollars and shillings on Nyanyuka

On Nyanyuka you save in shillings by M-Pesa and invest in NYSE shares, including parts of a share, once your savings reach KES 13,000. Share prices are in US dollars, so the shilling's rate matters both when you buy and when you sell, and prices can fall. You decide what to buy and when to sell; Nyanyuka guides the choice and places the order through its broker partner. Before your first order, check the current charges on our fees page, and read the main guide on how to invest in US stocks from Kenya for the wider picture.

Part of: How to Buy US Shares From Kenya

Frequently asked questions

Is a weak shilling good for Kenyans holding US shares?

It can help, because if the shilling weakens while you hold US shares, each dollar converts into more shillings when you sell. But the shilling can also strengthen, which works against you. Nobody can reliably say which will happen. In Cherono's table, a weaker shilling at KES 140 turned an unchanged share into a gain of 8.5% in shillings.

Can the exchange rate turn a gain into a loss?

Yes. In Cherono's example, a 10% rise in the share became only a 0.6% gain because the shilling strengthened to KES 118. If it had strengthened a little more, to about KES 117.27, the gain would have vanished. A stronger shilling can also deepen a loss, as when a 10% fall in the share became a 17.7% loss at KES 118.

Should I wait for a better exchange rate before investing?

Usually not, because trying to time the rate is as hard as trying to time share prices. Many investors instead put in a fixed amount each month, so they buy at many different rates over time. Spreading purchases over many months means your result does not rest on one day's rate. Only invest money you can leave alone for years whatever the rate does.

Where can I find today's dollar to shilling rate?

The Central Bank of Kenya publishes indicative rates each business day, and banks and platforms show their own buying and selling rates. The rate you actually get can differ from the published one. The gap between a platform's buying and selling rates is part of what converting costs you. Always check the rate your platform uses before you confirm a conversion.