Foreign Exchange Risk Management In Ghanaian Firms Finance Essay

This research shall be against the background that, Ghana has gone through a batch of reforms in recent old ages. Ghana adopted the Economic Recovery Programme ( ERP ) in 1983 with so many reforms such as trade reform, exchange rate policy, financial and pecuniary policies et al. The trade liberalisation reform involves decrease in import duties from high degrees to a maximal 25 per cent every bit good as the abolishment of the import licensing system. The liberalisation allowed private sector to entree natural stuffs and machinery without trouble as was the instance in the period of licensing. The debut of competition encouraged local makers to be cost effectual and more quality witting. Demand for foreign exchange to transact foreign exchange concern hence increased.

To ease the trade liberalisation reform in footings of entree to foreign currency, an exchange rate policy was besides portion of the several reforms carried out in the ERP which was modified to include construction next programme in 1986.

The undermentioned revolutionists ‘ policies were carried out under the fiscal sector liberalisation programme.

Forex agency which bargain and retail foreign currency were allowed to run in the early 1980 ‘s.

Compulsory minimal and maximal rates collectible on bank sedimentations were abolished in 1987.

Minimal loaning rate on bank loans were abolished in 1988

Announcement of banking jurisprudence 1992 and the banking Act in 2002 and the reappraisal in 2004

Compulsory loaning of 20 per cent of loans to the agricultural sector was abolished in 1990 and Abolition of controls on international capital motions.

These policies set the tone for liberalised economic system with the state set to bring forth its first commercial oil by the terminal of 2010, more foreign minutess are expected and the impact of exchange rate hazard on Ghanese houses can non be underestimated.

The of all time turning foreign exchange rate tendency tends to gnaw net incomes and the operating efficiency of import/export dependent houses, to the extent that it threatens the liquidness and/or hard currency flow place of these companies.

Significance OF THE STUDY

Chiefly, the part by commercialism in an economic system can non be overemphasized. The research worker deems it really necessary to look into how foreign exchange hazard is managed by Ghanese houses. The research worker is optimistic that, the consequences of the survey will lend significantly towards the advancement of companies that transact concern in foreign currency. The consequences of the survey can function as a footing or benchmark for better policy planning to hold the volatility in exchange rates every bit good as proper direction of foreign exchange hazard. Additionally, the survey can function as a footing for farther research into the causes of exchange rate volatility and its effects on earning and finance and how to minimise the effects. However, the function of the survey will merely realize or happen when related forces have entree to the findings and recommendations of the research worker and implement or learn from the findings.

SCOPE AND LIMITATION OF THE STUDY

Pulling from the aims and research inquiry of the survey, the research worker would seek to obtain information from 50-70 companies through the usage of questionnaire. The nature of the research aims and research inquiries will necessitate that, the companies to be selected should be the 1s whose inputs are obtained from foreign beginnings ( imports/export ) . Companies located chiefly in Accra and Tema ( two major metropoliss in Ghana ) will be selected to organize inputs for the production of finished goods, the sample of the survey. It would be a bunch of companies that import finished goods for resale every bit good as inputs for the production of finished goods to be sold either locally or exported Due to clip and resource restriction, the survey will cover the period 2005-2009 the research would concentrate on direction of foreign exchange hazard

Chapter LAYOUT

The organisation of the survey will be a Chapter survey, utilizing the instance survey methodological analysis attack. I hope to discourse in Chapter one the background to the job every bit good as the statement of the job. This chapter will besides cover the aims, importance of the job and the organisation of the survey. Chapter two will include deliberation on the conceptual theoretical account an assistance to theory, historical development of the foreign exchange market internationally and in Ghana ; and an in-depth literature reappraisal and theoretical model of foreign exchange hazard Chapter three covers the methodological analysis. This embraces the statistical theoretical account variables in the theoretical account, method of appraisal and expected marks of the consequences informations collected, job encountered in the information aggregation, reappraisal of trying techniques and informations aggregation techniques. In chapter four will be the manner of informations analysis. This covers the presentation and treatment of empirical consequence Chapter five screens drumhead, decision and deduction of the survey for the hereafter.

Methodology

This Chapter presents the methodological analysis employed to turn to the inquiries which motivated the survey. It covers the population size ; sample size ; informations aggregation techniques informations aggregation processs ; informations analysis processs and the trouble encountered in informations aggregation. The justification for choices shall besides be discussed every bit good.

DEFINITION AND SIZE OF POPULATION

Harmonizing to Chisnall ( 1981 ) , population is `any group of people or objects which are similar in one or more ways and which forms the topic of the survey in a peculiar study. The complete set of instances or group member Bryman ( 2007 ) . It is the entirety of instances that conform to some designated specification. Population may mention to the whole nose count of a state or in certain instances ; it may mention to particular subdivision of the general population of a state, which is the instance in this survey. But in most instances, it may be practically impossible to cover the whole population if it is really big therefore a sample is used as a representative of the population which in this survey is described as all the importers and exporter ( houses involve in foreign trades ) in Ghana.

DETERMINATION OF SAMPLE SIZE

Sampling is said to be the choice, normally, of a limited figure from a big group of population for proving and statistical intervention, on the premise that the same may be as representative, for the peculiar intents, of the whole group Bryman ( 2007 ) . In order to see that the same size is representative of the population the usage of purposive and stratified trying shall be employed. The sample size is about 70- 50 international bargainers ( importers/exporters of goods and services ) and natural stuffs for production

Sampling Technique

I the research worker shall use two trying techniques – purposive and stratified trying technique. The purposive sampling techniques shall be used because ; the information required is proficient and professional in nature that could merely be derived from the companies organizing the sample. Acknowledging that, the population may good incorporate different types of single pith differing steps and easiness of entree, the experimental exercisings shall be drawn in what I regard as a representative sample. This involves the riddance, awaited beginnings of deformation, but at that place will ever stay the deformations due to personal biass, or the deficiency of cognition of certain important factors in the construction of the population. With graded sampling, the sample shall be specially designed so that certain known features of the population under the study are represented in certain proportion.As such ; it involves a random choice process within each of several strata or groupings of people.

CHOICE AND USE OF DATA COLLECTION METHOD

The research work shall be conducted based on primary and secondary beginnings of information gathered by the usage of the following. In this survey, I the research worker shall used questionnaire theoretical account to roll up informations from the respondents. This shall be based on the outlook that it will enable me the research worker to pass less clip at the premises of the houses than interviews and other methods.One set of questionnaire shall be used and will be divided into two parts Part 1 seeks to garner information about the profile of the company while Part 2, will be specifically made to roll up information out of the kernel of the survey. In administrating the questionnaire, I the research worker shall direct 70-50 transcripts to the targeted respondents and my junior Brother, a representative of the research worker will personally administer all the transcripts of the questionnaires to the assorted respondents Subsequently, he shall roll up the answered questionnaires and send on them to me for my informations analysis.

DATA ANALYSIS PROCEDURE

Datas in this research work shall be analyzed utilizing descriptive statistics and perchance arrested development analysis

ANTICIPATED PROBLEMS OF THE STUDY

The major job I the research worker anticipate to face during the informations aggregation exercising is non respondents ; some of the respondents may be unwilling to collaborate as some may see the information needed as a agency of placing their expected net incomes within which revenue enhancement will be levied. Other may non react at all, intending some inquiries may be left unreciprocated. Equally the job of finance which already will non let I the research worker to go back place for this exercising can non be over-emphasize. This could do it hard and impracticable for me the research worker who had wished to carry on interview with some of the directors. The inter-marriage of academic work with the research work is already a job. However, I the research worker shall seek to make my really best to acquire some information despite all these envisage jobs

LITERATURE SOURCES AND REFRENCES

The undermentioned literatures have been found as a consequence of background reading and seeking utilizing the library stock of books on the above topic, researching journal articles books and other beginnings. These are non thorough list as more shall be explore to enrich the reappraisal.

Belk, P.A. and Edelshain, D.J. , 1997. Foreign exchange hazard direction – the paradox. Managerial Finance 23 7, pp. 5-24

Blin, J.M. , Greenbaum, S.I. , Jacobs, D.P. , 1980. Flexible Exchange Rates and International Business. Washington DC, USA.

Buckley A, 2000 Multinational Finance 4th edition Pearson instruction learner Hall

Collier, P.A. , Davis, E.W. , Coates, J.B. and Longden, S.G. , 1992. Policies employed in the direction of currency hazard: instance survey analysis of US and UK. Managerial Finance 18 3/4, pp. 41-52

Copeland, T.E. and Joshi, Y. , 1996. Why derived functions do n’t cut down FX hazard. Risk Management 43 7, pp. 76-79

Cummins, J.D. , Phillips, R.D. and Smith, S.D. , 1998. The rise of hazard direction. Economic Review 83 1, pp. 15-21.

Dolde W. , 1993. The flight of corporate fiscal hazard direction. Journal of Applied Corporate Finance 6 3, pp. 33-4

Duangploy, O. Bakay, V.H. and Belk, P.A. , 1997. The direction of foreign exchange hazard in US transnational endeavors: an empirical probe. Managerial Finance 23 7, pp. 85-100.

Glaum, M. , 1990. Strategic direction exchange rate hazards. Long Range Planning 23 4, pp. 65-73.

Hakkarainen, A. , Nathan, J. , Eero, K. and Puttonnen, V. , 1998. The foreign exchange exposure direction patterns of Finnish industrial houses. Journal of International Financial Management and Accounting 9 1, pp. 34-57.

Khoury, S. and Chan, K. , 1988. Hedging foreign exchange hazard: choosing the optimum tool. Midland Corporate Finance Journal ( Winter ) , 40-52..

Kohn, K. , 1990. Pull offing foreign exchange hazard profitableness. Columbia Journal of World Business 25, 203-207.

Madura J, 2000 International Financial Management 6th edition south western college

Marshal, A P. ( 1999 Foreign exchange hazard direction in UK, USA and Asia Pacific transnational companies

Rawls, S. and Smithson, C. , 1990. Strategic hazard direction. Continental Bank Journal of Applied Corporate Finance, 6-18.

Rodriguez R.M. , 1977. . Foreign-Exchange Management in US Multinationals Lexington Books, Toronto, Canada

Rodriguez, R.M. , 1981. Corporate exchange rate hazard direction: subject and aberrances. Journal of Finance ( May ) , 427-439..

Shapiro, A.C. , 1998. . Foundations of Multinational Financial Management Prentice Hall, NJ, USA

Tran V.Q. , 1980. . Foreign Exchange Management in Multinational Firms UMI Research Press, Michigan, USA.

Ethical motive

I shall make my uttermost best in the informations aggregation so that it does non put me or others at hazard, every attempt shall be made to follow with the University ‘s Ethical Guidelines. Participants will be informed before manus about the content of the questionnaire to avoid any hurt, so as to guarantee voluntary engagement. The content of which shall be approved by my supervisor before manus. Participants shall besides be allowed to retreat at any phase. Confidentiality shall be maintained where participants want to conceal their individualities. Their individualities shall be protected.

Decision

When I finished, my research shall try to reply the followers:

I ) How Ghanese houses manage their foreign exchange hazard ;

II ) The systems they use to control the consequence of foreign exchange hazard ;

III ) The ends and aims for pull offing foreign exchange hazard ; and

IV ) The sort of jobs they encounter in pull offing their foreign exchange hazard.