Foreign Exchange Hedging Strategies at General Motors

1348 Words6 Pages
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 selected to mitigate the transactional risk. Translation risk has also been seen at different hedging ratio levels; current one and the proposed one. The options were more profitable to the firm that has been recommended. Argentinean subsidiary’s…show more content…
Alternative strategies can also be used by netting off the amount or using futures however for that management’s time will be an issue. THE ARGENTINEAN PESO: The case with the Argentinean subsidiary is not similar to the first one. The Argentinean government is facing significant financial problems which throws doubts on its default. The country has very poor economic situation with no reforms and recent devaluation of currency has caused the managers to think over the strategy that should be followed. The manager did perform some hedging calculation though however hedging is used where there is risk in the short term and where risk cannot be transferred. In this case where we can easily see that local currency is devaluing with great pace we should look for a long term strategy. Hedging strategy of GM should not be altered in this regard however by other options we can find a solution. In such situations where government is facing hard times financially, government puts restriction on the level of remittance to the parent company. There is a significant risk involved with this investment and if there are any chances of this restriction then company should assess whether it is worthwhile to stay in operations there as it may cause severe problems for a company if it can’t withdraw its investments. Other options to deal with that could be
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