Foreign Exchange Policy at Gm Essay

723 WordsApr 1, 20133 Pages
Your write-up should be eight to ten pages (double-spaced). If you provide information outside the case or the textbook, use a footnote to indicate the source. You can use pictures, but no more than four, and each figure should be no more than half a page in size. 1. Hedging Policies at GM. Describe GM’s corporate hedging policies. What are the objectives of GM’s FX risk management policies? What are GM’s passive policies to hedge operating exposures? Use the numbers provided in the case on Canadian dollars to illustrate (you have to change the numbers on pages 4 and 5 from euro to Canadian dollar and follow the same logic). 2. Transaction Exposures vs. Translation Exposures. Define transaction exposures and translation exposures. What…show more content…
On the other hand, the cost of hedging was very high (see Exhibit 13). For example, the estimated cost of hedging a $300m exposure using 12-month forward contracts was $40.3m. Based on the cost/benefit analysis, do you think GM should hedge its ARS exposure? Why or why not? What are other ways GM can mitigate the impact of a likely ARS devaluation (you should probably rule out using other ARS derivatives other than forward contracts because those derivatives may not exist)? Hint: look for answers in the lecture notes and the textbook for other ways to mitigate exposure. For case 3 writeup and presentation, you need to quantify everything and the following serves as a check list. A: What is the net amount of transactional exposure in CAD for GM? B: On the date of the memo, the value of CAD is 1.578CAD/US$, what is the amount GM has to pay in part A in terms of US$? C: After twelve months, assume that CAD appreciates to 1.529CAD/US$, what is the amount GM has to pay in part A in terms of US$ if GM does not hedge at all? What is the loss for GM (HINT: compare the numbers in parts B and C)? D: After twelve months, assume that CAD appreciates to 1.529CAD/US$, what is the amount GM has to pay in part A in terms of US$ if GM uses the passive 50% hedging policy? What is the loss for GM (HINT: compare the numbers in parts B and D)? E: After twelve months, assume that CAD appreciates to 1.529CAD/US$, what is the amount GM has to

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