The study sought to ascertain the relationship and effects of foreign exchange liberalization on financial performance of commercial banks listed in Kenya’s Nairobi Securities Exchange. Baed on the study, this paper explores the extent to which interest rate fluctuations affect financial performance of banks listed at the NSE. The development of literature was guided by the interest rate parity theory. The study used a time series correlation research design targeting all commercial banks that are listed at the Nairobi Securities Exchange from 2006 to 2013. Data was sourced from the Central Bank of Kenya and published yearly accounts of listed banks. The study used multivariate Linear Regressions to establish the relationship between interest rates and bank performance indicators. The research results revealed a weak positive relationship between interest rate fluctuations and financial performance of commercial banks listed at the NSE. It is, therefore, recommended that the Central Bank of Kenya should come up with regulations to determine the interest rate of commercial banks and also help mitigate moral hazards incidental to financial performance of commercial banks.
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