"The Effect of Inflation Rate and Exchange Rate Fluctuations on the Concentration of Investment in Treasury Bills among Commercial Banks: An Analytical Study of a Sample of Yemeni Banks"

Abstract

This study aimed to clarify the impact of inflation rate and exchange rate changes on the concentration of investment in Treasury Bills among commercial banks, using a sample of Yemeni commercial banks represented by the National Bank of Yemen and Yemen Kuwait Bank for Trade and Investment. This was achieved by reviewing the trends of inflation and exchange rates, as well as monitoring the concentration of investment in Treasury Bills across the sampled banks. The study employed both the descriptive-analytical and econometric approaches to analyze the data economically and statistically, and to identify the nature of the relationship under investigation.Economic analysis revealed that changes in inflation and exchange rates do not have a significant effect on the level of concentration in Treasury Bill investment among the sampled Yemeni commercial banks, despite the clear erosion of the real value of returns on these instruments. The continued tendency of banks to increase their investment concentration in Treasury Bills is attributed to the lack of alternative investment options with lower risk in the local environment. Furthermore, econometric results indicated substantial variation in the influence of the macroeconomic variables (inflation rate and exchange rate) between the two banks: the explanatory power of the model for the National Bank of Yemen reached 66.2% of the variation in investment concentration, while the corresponding figure for Yemen Kuwait Bank for Trade and Investment stood at only 37.3%. No statistically significant effect of inflation rate on investment concentration was found for either bank at the 5% significance level; marginal significance was recorded only for Yemen Kuwait Bank at the 10% level, with a p-value of 0.067. These findings suggest that investment decisions are more responsive to exchange rate policies and external shocks than to prevailing inflation levels.