Currency risk management techniques of multinational companies in Ghana

Abstract

Currency fluctuations are a world-wide phenomenon which present upside and downside risk for multinational companies. Currency risk exposure can be hedged (managed) using different strategies. The study's main objective was to find out how MNCs in Ghana manage currency risk, and some of the problems they encounter in trying to manage their exposure to currency risk. This study adopted a quantitative approach to find out the techniques MNCs in Ghana use in managing currency risk. The specific quantitative approach employed in this study was a descriptive analysis technique, tables and graphs were used to enable easier interpretation of data. The MNCs that responded to the questionnaire confirmed that currency risk was the most significant exposure to their companies, hence most of the firms find it as important risk to be managed. The results of the study indicate that, 19% of the firms that participated in the questionnaire had no proper risk management function. It also emerged that transaction risk exposure is considered as the most critical exposure for Multinational companies in Ghana. Overall, MNCs in Ghana exhibited a low-level use of instruments for hedging against currency risk. Recommendations aimed at increasing CRM practices among MNCs in Ghana are made. This paper is of importance to MNCs that are exposed to currency risk and to financial institutions that are interested in providing hedging tools to these companies.