Are Albanian Businesses Protected Against Exchange Rate Risk? A Study on Forward Contracts and Euro Depreciation

Abstract

Exchange rate fluctuations are a significant challenge in global trade, affecting every stage of the goods and services distribution chain. This study explores the impact of exchange rate volatility on international business and economic exposure, focusing on Albania’s recent Euro depreciation and its effects on exporters. The sharp appreciation of the Albanian Lek (ALL) has reduced the competitiveness of Albanian exports, exposing businesses to significant financial risks. The research examines the role of forward contracts as a hedging tool for managing exchange rate risks. Given that businesses are the primary users of such instruments, a survey was conducted among Albanian companies, mainly exporters and importers, to assess their awareness, understanding, and usage of forward contracts. While a few banks offer these instruments, their adoption remains extremely limited. Findings show a high level of exposure to exchange rate risk, a low level of financial literacy regarding hedging tools, and delayed institutional responses to currency fluctuations. The results highlight a substantial gap in risk management practices, underscoring the need for enhanced financial education and institutional support to help businesses safeguard themselves against currency volatility.