Managing foreign exchange risk among Ghanaian firms

Abstract

Purpose – This paper reports on the foreign exchange risk-management practices among Ghanaian firms involved in international trade. The study focuses on how Ghanaian firms manage their foreign exchange risk and the problems involved in managing exchange rate exposure. It also seeks to ascertain the extent to which these firms use foreign exchange risk management techniques. Design/methodology/approach – Descriptive statistics were used in the presentation and analysis of empirical results. Findings – The results indicate that close to one-half of the firms do not have any well-functioning risk-management system. Foreign exchange risk is mainly managed by adjusting prices to reflect changes in import prices resulting from currency fluctuation, and also by buying and saving foreign currency in advance. The main problems the firms face are the frequent appreciation of foreign currencies against the local currency and the difficulty in retaining local customers because of the high prices of imported inputs, which tend to affect the prices of their final products sold locally. The results also show that Ghanaian firms involved in international trade exhibit a low level use of hedging techniques. Originality/value – The main value of this paper is the analysis of foreign exchange exposure management from the Ghanaian perspective. Relevant recommendations aimed at enhancing the foreign exchange risk-management practices among Ghanaian firms are made. The paper is useful not only to firms involved in international trade, but also to financial institutions interested in providing hedging products to these firms. © 2005, © Emerald Group Publishing Limited.