Managing foreign exchange risk in Tanzania

Poor management of unexpected movements in exchange rates is among the possible causes of financial disaster. This has led many organizations to develop new processes to manage the risk in a more systematic way. This study is about the management of foreign exchange risk which has become paramount for the survival of organization in Tanzania. The study investigated the foreign exchange risk management programs, factors and motives. The data for this study were obtained through the use of organization’s internal documents, discussion with managers, and other staff responsible with risk management programs. The study selected five organizations in Tanzania as case studies, namely; Stanbic Bank Tanzania limited, National Microfinance Bank plc Songas Limited, BP Tanzania Limited and Tanzania Breweries limited. The judgmental sampling techniques was employed and data were qualitative analyzed. The study found that reducing the effect of exchange rate fluctuation and maximizing of cash flows, appear to be the primary objective that motivate organization in Tanzania to engage in management of foreign exchange risk. This study also found that absence and inability to develop and use new process, such as financial derivatives to cope with foreign exchange fluctuation contribute to poor management of foreign exchange risk in Tanzania. This study concludes with specific improvement recommendations that can be applied to organization in Tanzania to obtain on – time management of foreign exchange risk.