5.0 Introduction
Chapter four of this study looked at the analysis of the data collected from the field.This chapter represents the summary of the study, draws conclusions based on the findings and ends with recommendations for academia and policy makers.
5.1 Summary of Findings of the Research
The study sought to examine the foreign exchange risk management in a selected commercial bank in Ghana, focusing on the UT Bank. Base on the interview the researcher conducted with the officials at the UT Bank, thus the risk department manager, treasury sales officer, money market supervisor, credit risk officer and the other officers at the bank, the following findings were revealed:
5.2 Foreign Exchange Risk and types of risks faced by the Bank
Regarding the understanding of foreign exchange risk and the types of risks faced by UT Bank, it was disclosed by the officials whom were interviewed that the risk which a bank may suffer as a consequence of adverse exchange rate movement during a point in which it holds an open posture, either position or forward or both in some foreign currency is known as foreign exchange risk.
It was discovered in this study that the types of risks common to the UT Bank and other commercial banks in Ghana are transaction risk, translation risk and economic risk. However, settlement, interest, currency and market risk are also faced by the bank.
5.3 Potential sources of Foreign Exchange Risk at the Bank
The possible sources of foreign exchange risks that were revealed in this study through the officers at the UT bank, Ghana are as follows: the purchase and sales of foreign currencies (that is when businesses are transacted in foreign currencies).
Another source of foreign exchange risk discovered in the study was when importation of goods and services paid in foreign currency.
Money market deals, swaps and foreign exchange deals, overweight tradings are also among the possible sources of foreign exchange risk at the UT Bank.
5.4 Challenges in Managing Foreign Exchange Risk
The challenges the study exposed in managing foreign exchange risk are among the following:
' High foreign exchange rate volatility: this is known as a major issue in the banking sector which affects the foreign investment of financial institutions.
' Unforeseen monitoring policies: these are rules, regulations which from the international market or government that negatively affect the management of foreign exchange risks.
' Lack of funds to effectively manage risk is also a challenge that was revealed in the study. The department that monitor risk at the institution is not well resourced to effectively carry out its responsibilities as a risk management department.
' Poor communication of risk management issues. There is no effective communication and education on risk issues in the company.
5.5 Effects of the Challenges on foreign Exchange Risk
According to the study, the main effects of the challenges on foreign exchange risk include; revaluation losses and gains. This comes as a consequence of the changes in the rate of foreign currencies.
It was further revealed that, the effects of the challenges on foreign exchange risk leads to bank losses and affects the soundness of the banks and their overall fiscal stability.
5.6 Foreign Exchange Risks and Profitability
The respondents, who answered the questions to whether the risks identified by the bank affects the company's profitability all indicated that risks affects the bank's profitability through the following ways:
' Foreign exchange risk affects the profitability of the bank in the sense that the bank requires more cedis to purchase USD to meet USD commitments and this impact negatively on the cedi position of the bank.
' It was also pointed out that foreign exchange risk affects profitability because when a bank hold assets or liabilities in foreign currencies and imparts the earnings and capital of the bank due to the fluctuations in the exchange rates, there is an uncertain movement that poses a threat to the earnings or profitability of the bank if movement is undesired.
' Maturity mismatch or revaluation and exchange losses depending on the banks' positions affect the bank's profitability. The exchange rate could also alter expected amount of principal or return of some lending or investment to the institution.
5.7 Strategies adopted by UT Bank to Manage Foreign Exchange Risks
Concerning the various strategies or measures that have been adopted by the UT Bank to manage foreign exchange rate according to the revelation by the respondents are:
' Swap Funds Limit: thus when the balance sheet is managed in such a way that when there are any losses or gains, the institution can accommodate.
' Position Limit: is a strategy that has been adopted by the bank to buy, hold and make revenue for the institution.
' Market risk officers: these workers are employed to scrutinise foreign transactions in the company. These market officers also help to mitigate losses at the bank.
5.8 Conclusion
To conclude, the study through its background, literature review, methodology, data analysis and discussions have provided key issues regarding foreign exchange risk management at the UT Bank, Ghana. Decisively, fair analysis has been made; the research questions and objectives have also been duly addressed.
It can therefore be concluded that transaction, translation and economic risks are the main foreign exchange risks faced by the UT Bank. For the potential sources of foreign exchange risks; purchases and sales in foreign currencies, importation of goods and services paid in foreign currencies and Money market deals, swaps and foreign exchange deals, are among the possible sources of foreign exchange risk at the UT Bank.
High foreign exchange rate volatility, unforeseen monitoring policies by the international market and government, lack of funds to effectively manage risk is also a challenge that was revealed in the study and poor communication of risk management issues were revealed as the major challenges in managing foreign exchange risk.
It can be concluded by this study that foreign exchange risk affects the profitability of UT Bank in the sense that the bank requires more cedis to purchase USD and to meet USD commitments and this impact negatively on the cedi position of the bank, and the bank hold assets or liabilities in foreign currencies and imparts the earning and capital of the bank due to the fluctuations in the exchange rates.
5.9 Recommendations
Base on the analysis and discussions done in chapter four, I therefore offer the following recommendations as possible solutions to rectify the challenges in managing foreign exchange risks at the UT Bank in particular, Ghana and the world at large:
' There should be a complete and well written foreign exchange risk document with the approval of key stakeholders in Ghana and on the international platform, detailing out the policies, strategies and processes for effective foreign exchange risk management. The policies and procedures must be easily communicated throughout the bank, from the corporate home base of all branches of the UT Bank, Ghana. This will move a long way to create foreign exchange risk management awareness among management and non-management staff.
' The Bank of Ghana (BOG), who is the key policy maker in regards to financial institution should double its effort and aimed at monitoring risk management practices in banks. This will insure that banks strictly adhere to foreign exchange risk management practice, to ensure stability in the banking sector.
' Consistent risk assessment should be established by the banks to realize the shifting styles in foreign exchange risk management. This will ensure that the bank is in a position to adapt to the new risk environment.
' To ensure collective effort in managing risk, the bank's foreign exchange risk management Committee should not simply comprise of risk officers, but should include the brains of other sections such as Operations, IT, Internal Control and the three line segments (Corporate Banking, Retail Banking and Treasury).
' There should be a broad consultation of all workers when managing in crafting foreign exchange risk management policy or strategy for financial institutions.