Sarcouncil Journal of Public Administration and Management

Abstract: This study investigates the impact of foreign exchange market volatility on institutional performance, focusing on how fluctuations in exchange rates influence profitability, liquidity, and financial stability. Using a quantitative and explanatory research design, panel data from 30 financial and non-financial institutions covering the period 2015–2023 were analyzed. Foreign exchange volatility (FXV) was measured using the GARCH (1,1) model, while institutional performance was assessed through key financial indicators such as return on assets (ROA), return on equity (ROE), liquidity ratio (CR), and financial stability index (FSI). The results reveal a significant negative relationship between FX volatility and institutional performance, indicating that increased exchange rate instability adversely affects institutional outcomes. Macroeconomic factors such as inflation and interest rate volatility further amplify these effects, whereas GDP growth and institutional size exhibit positive moderating influences, enhancing institutional resilience. Cluster analysis identified distinct performance patterns, highlighting that larger and diversified institutions manage volatility more effectively than smaller, risk-exposed entities. The findings underscore the need for robust risk management frameworks, strategic hedging, and supportive policy measures to stabilize institutional operations in volatile financial environments.