Gm Hedging Strategies Yen

1166 WordsMay 10, 20135 Pages
| Foreign exchange hedging strategies at General Motors | Competitive exposures | Project on International FinanceMar 2011 | ------------------------------------------------- Overview of General Motors and its corporate hedging policy General Motors was the world’s largest automaker and since 1931, the world’s sales leader. In 2000, it had a net income of $4.4 billion on revenues of $184.6 billion. North America represented the majority of sales to end customers but international operations were also growing and international sales had reached 18% of overall sales. The key objectives of GM’s foreign exchange risk management policy was to reduce cash flow and earnings volatility, minimize management time and costs dedicated to…show more content…
The above calculations have not taken into account any growth of the market or other variables. Also assuming that GM would not respond to a 20% change in exchange rates also may not be realistic. ------------------------------------------------- Sensitivity Analysis A sensitivity analysis has been carried out, by varying the Yen/Dollar exchange rate from $1 = 120 yen to $1 = 80 yen. Also the content sourced from Japan has been varied from 20% to 40%. Varying these parameters, we get the values for income loss/gain for 2001. These values are discounted at 20% to find out the loss/gain to perpetuity. In this analysis, the margin passed on by Japanese carmakers has been fixed at 45%. Income loss/gain to perpetuity for GM with changes in exchange rate and Japanese content in Japanese carmakers automobiles: Exchange Rate: $1= | 120 ¥ | 100 ¥ | 90 ¥ | 80 ¥ | Japanese content | | | | | 20% | -$623,405,090 | 0 | $415,596,830 | $935,097,790 | 30% | -$935,097,790 | 0 | $623,405,090 | $1,402,636,840 | 40% | -$1,246,790,490 | 0 | $831,193,660 | $1,870,175,890 | Another sensitivity analysis has been carried out, wherein the Japanese content in the automobiles is varied from 20% to 40% and the margin passed on by Japanese carmakers to customers has been varied from 15% to 45%. Here the exchange rate has

More about Gm Hedging Strategies Yen

Open Document