Case ID: IES204     Solution ID: 3235     Words: 1552 Price $ 45

BMW Currency Hedging 2007 Case Solution

Case Solution

The BMW Group has been showing positive results since  2007even though circumstances have been unfavorable, by accomplishing high sales volume figures and revenue streams. Extraneous elements continued to negatively impact the figures. The continuous depreciation of the US and Japanese currency, the overall increased cost of the raw goods, and unfavorable investment opportunities have all had an adverse influence. This was supplemented in adversity by the costs associated with the introduction of a number of new models. Group revenue generation increased by 14.3% to € 56.02 billion, however, with the elimination of the exchange rate impact, they would have grown by a further increase of 17.6% .The company had significant revenues in US currency, with more than 25% of its sales being transactional  in the US.Despite the fact that the company had manufacturing facilities in North America, sales in the US were more than the manufacture, which led to an approximated positive revenue generation for the US ofUS$ 7.4 billion.

Excel Calculations

Questions Covered

How would you evaluate BMW's transaction and operating exposure?

What do you think of BMW's hedging strategy?

Taking into account the evolution of the US$/EUR exchange rate during the last few years do you consider a range of 1.15 US$/EUR to 1.17 US$/EUR to be an appropriate equilibrium rate?

How would you define such an equilibrium exchange rate?

According to BMW's net exposure and its hedging strategy, how big do you think the impact of currency fluctuations is on profits and its stock market value? How would you quantify it?

BMW likes to follow a hedging strategy for its operations. How can this strategy help the firm in minimizing its US dollar exposure?