Foreign Exchange Risk Management and Business Performance: Strategies for Growth in a Volatile Currency Market

Abstract

In the context of accelerating globalisation and currency volatility, effective foreign exchange (FX) risk management has become essential for business sustainability and performance. This study investigates the relationship between FX risk mitigation strategies and key business performance indicators, focusing on firms operating in four emerging African economies—Nigeria, Ghana, Kenya, and South Africa. Using a mixed-methods approach, the research integrates survey data from 108 financial officers and interviews with 20 treasury executives to assess the adoption and impact of hedging tools, forecasting technologies, and exposure management practices. The findings reveal that firms employing structured FX hedging instruments and real-time forecasting tools report significantly higher financial stability, stronger returns on assets, and reduced earnings volatility. Conversely, firms with unhedged currency exposure, particularly small and medium-sized enterprises (SMEs), experienced performance deterioration due to depreciation risks and foreign procurement costs. Regression analysis confirms a positive correlation between FX risk management practices and financial performance, with technology adoption acting as a performance-enhancing catalyst. The study concludes that institutionalising FX policies and expanding access to hedging for SMEs are critical for growth and resilience. These insights offer practical implications for corporate treasuries, policy makers, and financial service providers navigating volatile currency environments.