This study seeks to address significant gaps in the foreign exchange (FX) risk management literature by investigating the FX risk management practices of importing and exporting firms operating in a sub-Saharan African market.
The study adopts mixed-methods approach, integrating quantitative survey data obtained from 72 risk managers of importing and exporting firms in Nigeria with qualitative insights derived from two focus group discussions involving an expert panel of import-export managers. Quantitative data are analyzed using descriptive statistics, while qualitative data are examined through content analysis.
The findings show that FX risk has a considerable influence on the financial and operational performance of importing and exporting firms. Commonly used FX risk management techniques include advance foreign currency purchases, price adjustments, foreign currency accounts, and exchange rate forecasting. The most important objectives of FX risk management are to minimize cash flow volatility, reduce earnings fluctuations, and minimize foreign exchange losses. However, firms face several challenges in managing FX risk such as forecasting inaccuracies, frequent exchange rate increases, and supply chain disruptions.
The findings offer practical implications for importing and exporting firms and financial institutions. Firms can use the insights to develop effective strategies for identifying, assessing, and mitigating financial losses arising from currency fluctuations, while financial institutions may apply the evidence to better understand and address the hedging needs of import-export firms.
Exchange rate risk management practices of firms engaged in international trade have received limited attention in the sub-Saharan African context. This study addresses this gap by examining the FX risk management practices of importing and exporting firms in Nigeria.
