Foreign exchange hedging strategies case solution the translation of balance sheet into 31% of canadian dollars results in the reduction of loss from $ (3380076) to $ (347529) this reduction in loss is about 968% from the current spot rate. Foreign exchange hedging strategies at general motors essay this report is based on a practical scenario solution of general motors the report addresses the problem given in scenario which is the change in policy of hedging with detailed reasoning. 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.
In contrast to an active hedging policy, a passive hedging policy is not be used to enhance returns therefore, gm corporation's treasurers are not allowed to benefit from exposure to appreciating foreign currencies. Foreign exchange hedging strategies at general motors (gm) case study solution general motors harvard business school case study solution to foreign exchange hedging strategies if you are interested in purchasing this solution, you can pay via the paypal link. For foreign exchange (fx), all of gm's hedging activities were concentrated in two centres: • the domestic finance group in new york handled fx hedging for gm entities located in north america, latin america, africa and middle east. Foreign exchange hedging strategies at general motors: transactional and translational exposure problem statement in september of 2001 general motors (gm) was faced with a billion dollar exposure to the canadian dollar.
General motors' current policy for managing foreign exchange hedging is that it only opts to hedge its exposure of transaction risk and only 50% of the transaction risk is headed which is prioritized on the basis of higher volume of transactions, but this is not good policy for hedging it will leave the balance 50% of transaction un-hedged. Hedging policy provides a consistent approach to the foreign exchange risks that general motors must manage, the company also has to consider deviations from prescribed. Exchange rate derivatives or foreign currency debt (financial hedges), as well as through the operational setup of the exporting firm (operational hedges) financial derivatives have today. Transcript of foreign exchange hedging strategies at general motors: transactional and translational exposures foreign exchange hedging strategies at general motors general motors team f1 ms wong sok fong ms tan yi lin yirene mr lionel lim ms yap li yun ms wong sok fong case introduction question 1 discussion any questions.
Foreign exchange hedging strategies at general motors case solution comparing forward cost with options: the main concern of gm was to execute the hedging policy in a cost efficient method. Aii how much should be hedged depends on how the company's risk management team views the market risk (foreign exchange, interest rate and commodities and commodities exposures) and the counterparty, corporate and operational risk aiii. Foreign exchange swaps are contracts wherein one currency is sold against another at inception, with a commitment to re-exchange the principal amount at the maturity of the deal in order to deploy cash resources as efficiently as possible. Foreign exchange hedging strategies at general motors competitive exposures by sacha singh|shemair lewis| martin massiah|diandra touissant 2 case summary in 2001, general motors was the world's leading automaker market share of 15% annual sales of $1846 billion earnings of $44 billion gm had manufacturing operations in more than 30.
Foreign exchange hedging strategies at general motors: transactional and translational exposures introduction general motors was the world's largest automaker and, since 1931, the world's sales leader. As multinational firms manage currency risks considering transactions and sustained impact and alternative answers to these exposures by analyzing two specific hedging decisions by general motors. Foreign exchange hedging strategies at general motors as gm expanded worldwide, the magnitude of its exposures to foreign exchange grew exchange rate swings directly flows into gm s income statement which associates gm to transactional exposure in forex. Although the overall corporate hedging policy provides a consistent approach to the foreign exchange risks that general motors must manage, the company also has to consider deviations from.