Effect of Exchange Rate Volatility on Micro Business Performance in Anambra Sate in Nigeria

This study investigates the effect of exchange rate volatility on micro business performance, specifically profitability, in Anambra State, Nigeria. Utilizing a multistage sampling technique, data were collected from 498 micro business owners to analyze the complex relationships between exchange rate fluctuation frequency, magnitude of exchange rate changes, exchange rate forecast accuracy, currency depreciation rate, and volatility index. Employing multiple regression analysis, we examined the impact of these independent variables on profitability as measured by gross profit margins and net income. Findings reveal that exchange rate fluctuations significantly influence the performance of micro businesses. Specifically, increase in the frequency and magnitude of exchange rate changes correlates with reduced profitability. Furthermore, poor exchange rate forecast accuracy and heightened currency depreciation rates exacerbate the adverse effects of exchange rate volatility on micro businesses. The volatility index, while positively associated with uncertainty, demonstrated a significant negative impact on profitability. Statistical tests indicated that 51% of the variability in micro business profitability can be explained by the aforementioned independent variables (R² = 0.51). This research underscores the urgent need for micro business owners to implement robust financial management strategies to mitigate risks associated with exchange rate fluctuations. It recommends enhanced access to real-time exchange rate data and forecast tools to improve decision-making. Additionally, policymakers should consider devising support programs that provide micro businesses with resources to better navigate currency fluctuations. The implications of this study are twofold; it contributes to the existing body of knowledge on exchange rate volatility and its effects on micro enterprises while providing practical insights for stakeholders in financial management and policy-making within the Nigerian context.