Case ID: 205095     Solution ID: 4039     Words: 1840 Price $ 75

Foreign Exchange Hedging Strategies at General Motors Transactional and Translational Exposures Case Solution

Case Solution

How should a global company look after its foreign exchange experiences? Looks into the transactional and the translational exposures and alternate reactions to these experiences by assessing two significant hedging results by General Motors. Demonstrates GM’s corporate hedging rules, its risk-management design and how accounting regulation influences and effects the hedging choices that are made. Despite the fact that the general hedging policy allows for a steady means to the foreign exchange risks that GM  must look after, the company also has to take into account the deviations from suggested frameworks. Demonstrates and details two such instances: an important exposure to the Canadian currency with negative accounting results and GM’s experience with the Argentinean currency at the time when depreciation was largely speculated. Students must assess the risks that GM is challenged with in each instance and contemplate over which of the hedging strategy, if any at all, may be adequate. Additionally requires students to assess the financial costs and accounting behavior of other derivative transactions for hedging needs. A redrafted account of a previous case.

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Questions Covered

Should Multinational firms hedge their foreign exchange rate risk? If not, what are the consequences? If so, how should they decide which exposures to hedge?

What do you think of GM’s foreign exchange hedging polices? Would you advise any changes?

Should GM deviate from its policy in hedging its CAD exposure? Why or why not? Is such a deviation consistent with policy?

Should GM deviate and change its hedging decision on the CAD If it does, what instruments should it use to accomplish that hedging?

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 de policy?

Why is GM worried about the ARS exposure? What operational decisions could it have made or now make to manage this exposure?

Should GM increase its hedge with respect to the ARS? How costly would it be and would it be worth it?