EXCHANGE RATE INSTABILITY AND MITIGATING STRATEGY IN NIGERIA’S MANUFACTURING SECTOR

Abstract

Exchange rate instability has significant implications for firms, especially those involved in import and export activities. This study was undertaken to examine the degree of adoption and effects of hedging as a mitigating strategy against exchange rate instability and associated risks by manufacturing firms in Nigeria. A cross-sectional survey design and random sampling were adopted, and a structured questionnaire was used to elicit information from 74 firms from every industry in the manufacturing sector. Descriptive statistics and multiple regression analysis were used to establish the relationship between the variables as well as the effect of the independent variable on the dependent variable. The results indicate that manufacturing firms in Nigeria infrequently adopt hedging mitigating strategies. However, there was a positive relationship between hedging strategies adopted and performance and hedging accounted for a 4.8 percent change in the manufacturing firms' performance outcome. The study suggests that the frequency and scope of use of hedging strategy by Nigeria’s manufacturers should be scaled up in order to significantly mitigate the negative effects of exchange rate instability or risks and fully appropriate the benefits of the strategy. Furthermore, it suggests in particular that firms engaged in the importation of input resources for manufacturing should promote the export of their finished products as a means of neutralizing the effects of exchange rate instability or risks.