In what capacity can a multinational firm assess and review the currency risks that emerge from competitive exposures? General Motors has a considerable aggressive exposure to the Japanese yen. Despite the fact that the dangers GM faces from the devaluing yen are generally recognized, the organization's corporate hedgingplan does not give any rules on overseeing such aggressive exposures. Eric Feldstein, treasurer and VP of account, needs to evaluate GM's yen exposure and suggest a means for GM to deal with the dangers that emerge from its competitive exposure. Students must assess the effect of yen devaluation on GM deals and benefits. A redafd account of a prior case.
1.Why is GM worried about the value of the yen? What types of currency exposures does GM face?
2. Does GM’s corporate hedging policy described in the case seem sensible?
3. How would you estimate volatility in the value of the yen?
4. Using one or more of the alternatives in question 3, make your own estimate of the standard deviation of the yen against the dollar at various horizons relevant to GM.
5. How important is GM’s competitive exposure to the yen?
6. How would estimate a value exposure for GM from the case information about competitive interactions with Japanese firms?
7. What other less information-intensive methods might allow you to assess GM’s competitive exposure? Would these methodsbe useful for assessing competitive exposures for other firms? How would you implement such a method?
8. How would you recommend GM manage its operating or competitive exposures?