EXCHANGE RATE VOLATILITY: CASE STUDY OF MANUFACTURING COMPANIES IN NIGERIA

The study examined the nexus between exchange rate volatility and financial performance of manufacturing companies in Nigeria between 2014-2023. Exchange rate volatility which is the independent variable was measured by exchange rate volatility, interest rate and inflation rate while financial performance was measured by return on asset, return on equity and net profit margin. The study adopted ex-post facto research design using five manufacturing companies as sample size. The secondary source of data was used to extract the needed data from the annual report of the sampled companies for the period of review. Simple regression analysis and Correlation was used to analyze the data. The findings show that interest rate has a mixed effect on the financial performance indicators. While it has a positive and significant relationship with ROA, it exhibits a negative but insignificant impact on ROE and a positive but insignificant impact on NPM. Inflation was found to have a negative but insignificant impact on ROA, a positive but insignificant effect on ROE, and a similarly positive but insignificant influence on NPM. The results also show that there is a significant negative relationship between exchange rate volatility and ROA and NPM, however, the effect on ROE was negative but statistically insignificant.

The study recommends that given the significant negative impact of exchange rate volatility on Return on Assets (ROA) and Net Profit Margin (NPM), it is essential for the Central Bank of Nigeria (CBN) and other relevant government bodies to implement policies aimed at stabilizing the exchange rate. Such measures could include maintaining adequate foreign exchange reserves, using exchange rate interventions, and promoting policies that encourage foreign direct investment (FDI).

Keywords: Exchange Rate Volatility, Interest Rate, Inflation Rate, Return on Asset, Return on Equity and Net Profit Margin.