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. At the time‚ North America represented approximately three-quarters of GM’s total sales and this large exposure to the CAD could significantly affect GM’s financial results. GM had a passive strategy of hedging 50% of its exposure; this paper explores the impact of
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Introduction General Motors was the world’s largest automaker and‚ since 1931‚ the world’s sales leader. In 2001‚ GM had unit sales of 8.5 million vehicles and a 15.1% worldwide market share. Founded in 1908‚ GM had manufacturing operations in more than 30 countries‚ and its vehicles were sold in approximately 200 countries. In 2000‚ it generated earnings of $4.4 billion on sales of $184.6 billion. The company is trying to accurately calculate the risk of a potential devaluation to the ARS. In
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Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures Prepared By: Danial Wahaj Khan EXECUTIVE SUMMARY: 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. The report then looks at the different available hedging instruments to the firm. Profitability of both instruments has been compared and lowest cost option was
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Case “Foreign Exchange Hedging Strategies at General Motors: Transitional and Transactional Exposures” Issues: 1. Should multinational firms hedge foreign exchange rate risk? They should to better manage the foreign exchange risks. If not‚ what are the consequences? The gains in the foreign country would contribute less when the foreign currency depreciated against the home country’s currency. If so‚ how should they decide which exposures to hedge? The firm should focus on the importance of hedging
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FX Hedging:10 Common Pitfalls A Structured Approach to Financial Risk Management Executive Summary 1 Unclear Risk Management Objectives 3 Absence of Appropriate Performance Benchmarks The design and implementation of an effective FX risk management In order to design an effective FX hedging strategy‚ it is With almost any business activity‚ performance necessary to know exactly what the strategy is intended measurement is essential to determine the effectiveness to
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of the largest automakers in the world‚ General Motors (GM) undertakes its manufacturing operations in over 30 countries with vehicles being sold in over 200 countries. Through undertaking its international operations it also subjects itself to various types of foreign exchange exposures due to fluctuations in the values of currencies; to manage this problem it has adopted a passive hedging policy and aims to reduce the impact of foreign exchange exposures on the business. The first part of this
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a multinational firm manage foreign exchange exposures? The case examines transactional and translational exposures and alternative responses to these exposures by analyzing two specific hedging decisions by General Motors. Describes General Motors’ corporate hedging policies‚ its risk management structure‚ and how accounting rules impact hedging decisions. The company is considering deviations from prescribed policies because of two significant exposures: an exposure to the Canadian dollar with
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3 2. COMPETITIVE CURRENCY EXPOSURE AT GM (2001: Using Case Info) 3 2.1 Performance 6 2.2 Automobile Market in USA 7 2. 3 Competitive Exposure Mechanism 8 2.4 Yen Exposure Quantified 9 3. APPROACHES TO MANAGE GM’s COMPETITIVE EXPOSURE 10 4. GM’s COMPETITIVE YEN EXPOSURE (993-2005) 13 4.1 GM’S US Car Sales Exposure 14 4.2 GM’S Market Share Exposure 15 4.3 GM’S Net Income Exposure 16 4.4Implication of result on hedging strategy 17 5. NEW GM’s COMPETITIVE EXPOSURE 18 5.1 Issue in measuring
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www.elsevier.nl/locate/econbase Exchange rate exposure‚ hedging‚ and the use of foreign currency derivatives George Allayannis a‚* ‚ Eli Ofek b a b Darden Graduate School of Business Administration‚ University of Virginia‚ PO Box 6550‚ Charlottesville‚ VA 22906‚ USA Stern School of Business‚ New York University‚ 44 West 4th St. #908‚ New York‚ NY 10012‚ USA Abstract We examine whether firms use foreign currency derivatives for hedging or for speculative purposes. Using
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4290 General Motors‚ JPY-USD Exposure Executive Summary General Motors Corporation‚ the world’s largest automaker‚ has an extensive global outreach‚ which places the firm in competition with automakers worldwide‚ and 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
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