|Foreign Exchange Hedging Strategies at General Motors (GM) Case Study Solution
General Motors Harvard Business School case study solution to foreign exchange hedging strategies.
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The solution should focus on answering the following questions:
1. An assessment of the policy components of managing GM’s operating exposures. Consider the limits, the rolling forwards, the
hedge ratios and delta basis, the accounting treatment and reporting.
2. There is a large exposure to the Canadian dollar with possible adverse accounting implications. What numbers are relevant to
assess this issue? What other considerations are relevant? What would you recommend? Would you increase the hedge ratio to
75%? Why or why not? Is the functional currency correctly designated?
3. What would you recommend be adopted as the solution for the Argentinean peso situation where a valuation is widely
anticipated? Are there reasonable alternatives for action? Should the hedge position be increased?
4. The Japanese yen issue is an interestingly different issue in that competitive position is in play. What do you recommend be
done? Is this a situation where hedging strategies are appropriate?
5. Is there any way that the issues above are linked?
6. Should multinational firms hedge foreign exchange rate risk? If not, what are the consequences? If so, how should they decide
which exposures to hedge?
7. What do you think of GM’s foreign exchange hedging policies? How would you advise them in terms of changing it?
8. Should GM deviate and change it is hedging decision on the CAD? Is such a deviation consistent with policy?
9. If it does, what instruments should it use to accomplish that hedging?
10. Should GM increase its hedge with respect to the ARS? How costly would it be and would it be worth it?
11. Why is GM worried about the yen? How important is the competitive exposure?