Monte Carlo Simulation of Financial Risk in Small and Medium Enterprises in Onitsha Commercial Hub

Small and medium enterprises operating within the Onitsha commercial hub of Anambra State, South East Nigeria, face multidimensional financial risks arising from currency depreciation, supply chain disruptions, and fluctuating consumer demand. This study employs Monte Carlo simulation to quantify financial risk exposure and estimate the probability distribution of annual profit outcomes for a representative sample of 60 trading enterprises. Financial data including revenue, cost of goods sold, operating expenses, and inventory values are collected through structured interviews over a three-month period. Key risk variables, specifically exchange rate volatility and commodity price fluctuations, are modelled as lognormal distributions calibrated from Central Bank of Nigeria and National Bureau of Statistics data. Ten thousand simulation trials are executed using Python's NumPy library to generate empirical profit distributions for each enterprise category. Results indicate that 38 percent of surveyed enterprises face a probability exceeding 40 percent of recording a net loss in any given year. Value-at-Risk at the 95 percent confidence level averages 2.4 million naira per enterprise annually. The study recommends that enterprise owners adopt currency hedging instruments and diversify supplier bases to reduce tail risk exposure. These findings underscore the value of probabilistic financial modelling as a planning tool for informal sector businesses in Nigeria. Keywords: Monte Carlo simulation, financial risk, SMEs, Onitsha, Value-at-Risk.