Exchange rate fluctuationsRao. (2008), foreign exchange risk in the automobile industry and small exchange rate fluctuations have a negative effect on companies' stock returns. Using a quantitative research method, the study investigated the effect of exchange rate fluctuations on the stock returns of European-based automobile manufacturers with market interests in the United States. researchAccording to Juan (2008), money used in global purchases is moved between domestic countries and foreign partners as part of global sourcing and the stability of the national currency used facilitates international trade, because instability makes global sourcing more complex, introducing more risks. on the markets. If trade amounts to millions of dollars per transaction, then a small deviation of around 0.5% in the exchange rate creates a huge effect on the effectiveness of the global sourcing strategy and profitability of the entire business supply chain. that exchange rate depreciation benefits some businesses by promoting economic growth through technology transfer between businesses. Exchange rates have a significant effect on current account balances since within three years of a depreciation event, for example, account balances depreciate by three percentage points of GDP. This occurs through a reduction in savings without a significant reduction in investment by these companies, creating the need for developing countries to create confidence in their economic policies (Marcus, 2011). Higher monetary inflation rates have a relationship with i.... ... middle of paper ...... about market liberalization in industry. The government should formulate appropriate policies and strategies to improve the financial performance of the sector and appropriate global sourcing strategies will enable companies to save a lot and be able to compete and sustain in the markets. Currently, the auto industry's reliance on government legislation requiring assemblers to source certain items locally is a manifestation of a fragile relationship between auto industry buyers and suppliers and the lack or lack of commitment from large buyers to supplier development in the automotive industry due to lack of incentives from governments. It is therefore evident that there is a need for incentives within the business environment of the sector, rather than government regulations and controls in the sector (Kenya Automotive Industry Report)., 2007).