Foreign Currency Risk Awareness and Management Practices in Tanzania

Abstract

This paper seeks to evaluate the capacity to manage foreign exchange risk among two groups of interest – practitioners in business and recent graduates of higher educational institutions in Tanzania. It also assesses the adequacy of the content of programmes of study in third-level business training institutions in preparing graduates to manage foreign currency risk effectively.

The research was mainly in the form of a survey. Interviews with key informants provided additional insight from which mini cases were developed to demonstrate some specific issues of interest concerning foreign currency management in Tanzania.

This paper concludes that foreign currency risk is perceived to be a significant challenge by the overwhelming majority of both respondents in business and recent graduates of higher education institutions. It also concludes that the capacity to manage foreign currency risk is either weak or mostly non-existent and there is a need to strengthen that capacity.

In self-assessment of capacities and competencies for managing foreign currency risk through hedging techniques it was evident from the results that awareness of foreign currency risk management techniques as well as competencies to put them to use were significant challenges among respondents – both in firms and to a lesser extent recent graduates. Practitioner respondents were less knowledgeable and less able to use foreign currency hedging techniques and this was the case for both internal and external hedging techniques.

Financial intermediaries on the other hand did not have readily available instruments and products for managing foreign currency risk and this did not help in enhancing the practices in place within firms.