The Impact of Foreign Exchange Rate Flactuations on Financial Perfomance of N. Richards and Company

Abstract

This study investigated the impact of foreign currency exchange rates on retail firms. The main objective of this project was to determine if exchange rate fluctuations has impact on financial performance of retail shops, using the case of N Richards and company for the period 2016 to 2018. The study also sought to identify the key risk management practises that retail firms are implementing in response to foreign exchanges risks. The central issue that gave rise to this research is the increased importation of basic products like cooking oil and mealie-meal which the company cannot operate without for long, bundled with declining profits being realised by the company. This study adopted the descriptive research methodology to answer both qualitative and quantitative research questions. Both primary (questionnaires and interviews) and secondary (company records) sources of data were used in this study. The research key findings show that foreign exchange rate fluctuations have a negative impact on the profitability or the financial performance of the company. This was evidenced by a total decrease of profit from 8 million RTGs in 2016 to 5 million RTGS in 2018. The study findings showed that, the risk management practices which were in place at N. Richards are insufficient. The study revealed that, the company had only diversification, limiting the number of orders as well as overseas loans as the exchange risk management practices. From the study findings, the researcher recommended the company to try by all means to reduce its importation especially during this period in which we are facing harsh economic conditions in conjunction with a weak domestic currency which is depreciating or loosing value on daily basis. The researcher also recommended engaging in hedging practices for example the natural hedging in order to cater or manage the foreign exchange risk. This study therefore concluded that, foreign exchange fluctuations have negative impact on retail firm’s financial performance.