Foreign Exchange Hedging Strategies At General Mot

411 Words2 Pages
Case 1: Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures Decision Point: Eric Feldstein, head of General Motor’s treasury team, has to decide if GM’s exposures to the Canadian dollar and Argentine peso pose risks that call for deviations from the company’s standard hedging policy. Learning Points: The case explores how a multinational firm manages its foreign exchange exposures. The case provides students with the opportunity to: • Examine the reasons for hedging. • Identify the different types of exchange rate risks faced by companies with international operations. • Understand the decisions that have to be made to construct a hedging policy. • Analyze how changes in exchange rates affect a company’s financial statements • Compare the use of futures and options in implementing hedges. Assignment Questions: (The questions below are tentative and subject to changes. Please check Blackboard for the complete list of questions) 1. Should multinational firms hedge foreign exchange rate risk? If not, what are the consequences? If so, how should they decide which exposures to hedge? 2. What do you think of GM’s foreign exchange hedging policies? How would you advise them about possible changes to their policies? 3. What would happen to GM’s income statement if the Canadian dollar moved strongly, in either direction? 4. Should GM deviate and change its hedging decision on the Canadian dollar? 5. If GM does deviate from its formal policy for its CAD exposure, how should GM think about whether to use forwards or options for the deviation from the policy? 6. Should GM increase its hedge with respect to the ARS? How costly would it be and would it be worth it? 7. What operational decisions could GM make to manage this exposure? Additional Materials Recommended • Lawson, John, et al., Treasury Profits-German

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