Decision Point:
Eric Feldstein, head of General Motors treasury team, has to decide if GMs exposures to the Canadian dollar and Argentine peso pose risks that annunciate for
deviations from the companys standard hedge policy.
Learning Points:
The ca subroutine explores how a multinational firm manages its foreign tack exposures. The
gaucherie 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 companys financial statements
Compare the use of futures and options in implementing hedges.
Assignment Questions:
(The questions under are tentative and subject to changes. Please check chalkboard 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 GMs foreign exchange hedging policies? How would you advise them about possible changes to their policies?
3.
What would happen to GMs 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 musket ball 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 cast up its hedge with respect to the ARS? How costly would it be and would it be expenditure it?
7. What operational decisions could GM make to manage this exposure?
special Materials Recommended
Lawson, John, et al., Treasury Profits-German Autos-The Billion Dollar Hedges (Smith Barney Citigroup, June 2003).
Jonas, Adam, et al., Autos...If you want to get a full essay, order it on our website: Ordercustompaper.com
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