The Implication of Foreign Exchange on Profitability of Firm

The study investigated the relationship between exchange rate volatility and the profitability of listed nonfinancial firms ni Nigeria, with a focus on the nominal exchange rate (NEXR) and firm size (FSIZE) as key variables influencing return on assets (ROA). The findings revealed a significant positive relationship between the nominal exchange rate and profitability, indicating that higher nominal exchange rates enhance firm profitability by potentially lowering import costs and boosting export competitiveness. Conversely, firm size was found to have a significant negative impact on profitability, suggesting that larger firms face inefficiencies and higher operational costs that diminish their ROA. These results highlight the dual influence of exchange rate conditions and firm size on profitability, emphasizing the need for firms to manage exchange rate exposure and operational efficiency effectively to sustain profitability. Overall, the study underscores the critical role of macroeconomic factors and internal management practices in determining the financial performance of firms in Nigeria.