ABSTRACT
The general aim of this study is to investigate the effect of exchange rate on financial Reporting of small and middle-sized companies in Anambra State.Specifically, this study investigated the effects of Balance of payments, the effect of foreign direct investment, the degree of Inflation and the effect of Taxation. The related theories of exchange rate are Purchasing power Theory, Interest Rate Theory and Product Cycle Theory. This study was conducted through a descriptive study. In addition the study employed a survey research design in data collection. The sampling procedure of this study used non-probability sampling procedure particularly purposive sampling or judgmental sampling, this research employed quantitative data collection method whereby data was gathered by the use of closed ended questionnaires which are self-administered. The data collected was analyzed using the software called Statistical Package for the Social Sciences (SPSS) version 22 and results shown in terms of frequency distribution and percentages, the target population of the study is 140 employees of some manufacturing  companies in Anambra State. A sample of 42 respondents was selected using Mugenda and Mugenda’s formula. The study used secondary data. Data collection methods used included use of questionnaires. The selection sample technique was purposive or judgmental approach. A regression model was applied to determine the relationship between Balance of payments, foreign direct investment, inflation and Taxation as the independent variables and financial Reporting for  Innoson Motors as the dependent variable.
CHAPTER ONE
INTRODUCTION
1.1.Background of the Study
Exchange rates can depart from their equilibrium level for two reasons. First, as a result of government intervention directly aimed at altering the real exchange rate (currency manipulation). In this respect, governments and/or central banks possess a number of policy instruments that can affect the real value of the exchange rate, including the introduction of capital controls or targeted intervention in foreign exchange markets. Second, misalignments can be the unintended side effect of macroeconomic policies aimed at achieving domestic objectives, or the result of distortions in the international financial architecture or in domestic structural conditions. There is an academic debate on the extent to which the real exchange rate is a variable that policy makers can influence, see for instance, Eichengreen (2007) and Rodrik (2008). In addition, to ascertain the root cause of a currency misalignment is often a difficult matter in practice. The ensuing discussion will abstract from the cause of the misalignment and will, instead, focus on its trade effects in the long- versus the short-run. Standard economic theory defines the long-run as the period in which all prices are fully flexible. Put differently, in the long-run prices have the time to adjust to any policy change (or other shock). In this context, money is like a veil to the real economy, an intuition that dates back at least to David Hume’s essays on money and the balance of trade. In particular, when markets have no distortions, an exchange rate misalignment – such as a devaluation of the currency – has no long-run effect on trade flows or on real economic activity, as it does not change relative prices. The short-run, on the other hand, can be different. The reason is that, if some prices in the economy take time to adjust (i.e. are “sticky”), movements in nominal exchange rates can alter relative prices and affect both the allocation of resources between non-tradable and tradable sectors and international trade flows. The short-run trade effects of exchange rate misalignments, however, are not straightforward; see Staiger and Sykes (2010). Recent macroeconomic literature shows that these effects depend, among other things, on the currency in which domestic producers invoice their products.
Exchange rate movements have been a big concern for investors, analyst, managers and shareholders since the abolishment of the fixed exchange rate system. This system was replaced by a floating rates system in which the price of currencies is determined by supply and demand of money. Given the frequent changes of supply and demand influenced by numerous external factors, this new system is responsible for currency fluctuations. These fluctuations expose companies to foreign exchange risk. Moreover, economies are getting more and more open with international trading constantly increasing and as a result companies become more exposed to foreign exchange rate fluctuations. Foreign exchange exposures is the sensitivity of changes in the real domestic currency value of assets liabilities or operating incomes to unanticipated changes in exchange rate (Abor, 2005)
 In practice, economic exposure is computed as the net sensitivity of some aggregate measure of firm value to currency fluctuations. By focusing on the net sensitivity, economic exposure includes the direct and indirect effects of currency fluctuations. In practice, there is little consensus on the use of appropriate choice of aggregate measure. The focus of this paper is on the economic exposure of UK non-financial firms. Overall, theory supports the existence of a relationship between the value of the firm and exchange rate movements. Economic theory suggests that changes in the exchange rate can produce a shift in stock prices, directly in the case of multinational firms, exporting and importing companies, firms which import part of their inputs and indirectly for other companies. Exchange rate movements affect both the prices of imported finished goods and the costs of imported inputs, thus influencing indirectly those companies that compete with such firms (Amos, 2009)Exchange rates may affect a firm through a variety of business operation models: a firm may produce at home for export sales as well as domestic sales, a firm may produce with imported as well as domestic components, a firm may produce the same product or a different product at plants abroad. The model of the firm must be broad enough to capture all of these channels.
