EFFECT OF FOREIGN EXCHANGE RATE FLUCTUATION ON PROFITABILITY OF LISTED MANUFACTURING FIRMS IN NIGERIA

Abstract

The study determined the effect of foreign exchange rate fluctuations on the profitability of listed manufacturing firms in Nigeria. Specifically, the study examined the effect of foreign exchange rate, foreign exchange supply and foreign exchange reserve on Return on Assets of listed manufacturing firms in Nigeria. The study used the ex-post facto research design and ten (10) listed industrial goods manufacturing companies in Nigeria spanning from 2013 to 2022. Hypotheses testing were conducted using Panel Data Regression estimates at 5% significance level which revealed the following findings: foreign exchange rate has a negative and insignificant effect on the Return on Assets of listed manufacturing firms in Nigeria (p-value = 0.7269); foreign exchange supply has a positive and insignificant effect on the Return on Assets of listed manufacturing firms in Nigeria (p-value = 0.9641); foreign exchange reserve has a negative and insignificant effect on the Return on Assets of listed manufacturing firms in Nigeria (p-value = 0.7659). The study recommends that manufacturing firms in Nigeria should develop and implement a robust currency risk management strategy as hedging mechanisms, such as forward contracts, options, or natural hedging through geographical diversification of revenue sources.