Exchange rate risks and profitability of auto parts dealers in Ghana.

Abstract

Exchange rate volatility has a direct impact on import and export trade. The adoption of a flexible exchange rate regime after the demise of the Bretton Woods system of exchange has become a major source of risk to trade and therefore, negatively affects imports which are critical to the development and growth of third world countries. This study therefore, examined the impact of exchange rate risks on the profitability of auto parts dealers (importers) in Ghana who have carried on their businesses from 2000-2015. The study used qualitative methodology hence descriptive statistics which reveals that the exposure of auto parts importers to exchange rate risks are caused by domestic currency depreciation, excessive demand for foreign exchange, type of foreign exchange market, source of supply, credit sales, credit period, default payment and type of vehicular parts. Auto parts importers in Ghana are thus exposed to exchange rate risks and exchange rate volatility impacts on firms` cash flows, profitability and therefore market value. It is thus recommended that the financial markets should be well developed to accommodate and support the operations of auto parts importers considering the economic importance of the road sector to Ghana`s economy. Also, policy makers should work to control inflation and stabilize the value of the cedi.