3. Evaluate GM’s currency hedging policies. [3 pages] {Gavin} {Ryan} The issue here may lie with the 50% to 75% hedge as it is doubtful as to why GM does not hedge its receivables / payables by 100%. Perhaps the issue is related to high costs of using options and their receivables / payables run into huge amounts. Additionally‚ GM is not keen on committing to a forward because they have positive expectations about the future exchange
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“Aguila”‚ designed to work with the new clean fuel technology of PEMEX for an acceptable price. In the preceding five years‚ the value of the Mexican Peso had dramatically increased and decreased against most international currencies‚ and the majority of analysts refused to guess when it would stop varying so wildly. The value of the Korean Won per Peso had ranged from
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economic problems plagued early presidential terms. In the early 1990’s‚ then president Carlos Menem‚ adopted a new approach to public economics and put flagstones in place. Hyperinflation was a key problem and‚ in 1991‚ Menem addressed this by imposing a peso-dollar fixed exchange rate. He also aligned his plan on the neoliberal Washington platform and aimed to deregulate labor‚ liberalize trade‚ and privatize enterprises. This would lead to much spending on the part of the government‚ but in many respects
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Argentina struggles with keeping the peso at the value to equal the American dollar (1 peso = $1). The problem with keeping the peso equal to the dollar was that their trading partners‚ like Brazil‚ were facing their own financial issues. With other countries facing difficult economic times the goods being exported from Argentina were either taken out of the market all together or were now too expensive to other markets. Once people were “pulling money out of pesos‚ placing their funds in dollar accounts
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subjects itself to significant exchange rate exposure. In particular‚ despite most of its revenues and production being derived from North America‚ depreciating yen rates pose problems for the firm indirectly through economic exposure. While GM possesses ‘passive’ hedging strategies for balance sheet and income statement exposures‚ management has not yet quantified or recognized solutions to possible losses from the indirect competitive exposure it now shared with Japanese automakers in the U.S import market
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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? Generally‚ multinational firms should hedge foreign exchange rate risk. Because foreign exchange risk 1) Affects existing income statement items and balance sheet assets‚ liabilities‚ and equity through translation exposure. 2) Influences the value of outstanding foreign-currency-denominated contracts and obligations‚ thus firm’s earning and
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a brief example to better understand the purchase power theory; suppose that one US dollar is currently in the market for ten Argentinean pesos. In the United States a soccer ball costs $40 while in Argentina they sell the same soccer ball at 150 pesos. Since 1 US dollar is the same to 10 pesos‚ the soccer ball that in United States you could buy for $40 bucks and 15 pesos if we buy it in Argentina. There’s an advantage of buying the soccer ball in Argentina this will bring some upsets to the soccer
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keeping in mind the exchange rates between Mexican Pesos and Euros in order to maximize their return. They also need to keep in mind the inflation rates over time and the risks involved with this type of investment. Analysis Number 1. Groupe Ariel is recycling old equipment in Mexico. They will need to use pesos to calculate their cash flows to see how this part of their project will impact their finances. They also need to convert this peso amount into Euros. We began the analysis by computing
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Chapter 11 balance sheet hedge. Reducing foreign exchange (FX) exposure by varying the mix of a firm’s foreign currency assets and liabilities. Economic exposure. The effect of FX rate changes on a firm’s future costs and revenues. Exposure management. Structuring a company’s affairs to minimize the adverse effects of exchange rate changes on earnings. net exposed asset position. An excess of exposed assets over exposed liabilities (also called a positive exposure). net exposed liability position
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between countries‚ firms’ competitive positions will not be altered by exchange rate changes. Firms are not subject to operating exposure. 6. General Motors exports cars to Spain but the strong dollar against the euro hurts sales of GM cars in Spain. In the Spanish market‚ GM faces competition from the Italian and French car makers‚
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