THE EFFECT OF EXCHANGE RATE FLUCTUATION ON THE PROFITABILITY OF SMALL SCALE ENTERPRISE IN GHANA

Abstract

This work looked at the effects of exchange rate fluctuations on Small and Medium Scale Enterprise (SME’s) in Ghana using Budget City Ltd as a Case Study. The study sought to establish the following; 1. To find the extend to which the depreciation of the Cedi against the major currencies affects the cost of operations of SME’s. 2. To establish the extend to which the depreciation of the Cedi against the major currencies influences the strategies developed by SME’s in order to be competitive and profitable. 3. To check the strength of association between the inflation rate and cash flow of the SME’s. To achieve the objectives above, the study sought answers to the following questions; 1. Is there any relationship between inflation and profitability of the SME’s? 2. Are the SME’s affected positively or negatively by the depreciation of the Cedi against the major foreign currencies especially the US Dollar? 3. How does the uncertainty of the exchange rate fluctuations affects SME’s performance? 4. How do managers of SME’s factor in the exchange rate risk factors in their strategic plans? 5. What managerial decisions are made to decrease impacts of exchange rate fluctuations and thus increase the firm’s profitability? Various methods were used in gathering the relevant data for this research work. A structured questionnaire was the main primary source of data collection. A brochure from Budget city Ltd , copies of the Graphic Business from January ,2010 to December,2011, and statement of cash flows of Budget City Limited served as the Secondary source of data collection for this research work. Data collected were presented and analysed with the aid of Statistical Packages for Social Science (SPSS). In summary, it can be said that foreign currency fluctuations increase the production cost of SME’s with Budget City limited not being an exception.