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    Ejaz Badizai
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    GM hedges foreign exchange exposures over 1-2 year horizons using currency options and forwards to mitigate risks from currency fluctuations that could impact profits. GM is worried about a stronger USD hurting sales in Japan. A 20% depreciation of the JPY could increase GM's value by $1.5 billion based on their Japanese operations accounting for 6.5% of earnings and the change persisting indefinitely. While increasing GM's worth, the stock may initially fall as the stronger dollar threatens Japanese sales. GM could further hedge JPY exposure through production and sourcing changes in Japan.

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    GM hedges foreign exchange exposures over 1-2 year horizons using currency options and forwards to mitigate risks from currency fluctuations that could impact profits. GM is worried about a stronger USD hurting sales in Japan. A 20% depreciation of the JPY could increase GM's value by $1.5 billion based on their Japanese operations accounting for 6.5% of earnings and the change persisting indefinitely. While increasing GM's worth, the stock may initially fall as the stronger dollar threatens Japanese sales. GM could further hedge JPY exposure through production and sourcing changes in Japan.

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    9 views1 page

    Case GM Questions

    Uploaded by

    Ejaz Badizai
    GM hedges foreign exchange exposures over 1-2 year horizons using currency options and forwards to mitigate risks from currency fluctuations that could impact profits. GM is worried about a stronger USD hurting sales in Japan. A 20% depreciation of the JPY could increase GM's value by $1.5 billion based on their Japanese operations accounting for 6.5% of earnings and the change persisting indefinitely. While increasing GM's worth, the stock may initially fall as the stronger dollar threatens Japanese sales. GM could further hedge JPY exposure through production and sourcing changes in Japan.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Case: Foreign Exchange Hedging Strategies at General Motors:

    Competitive Exposures

    When preparing the case, please consider the following questions.

    1. Characterize GM’s risk management policy with respect to FX exposure. What types
    of exposures does GM hedge over which horizons using what tools?

    2. Why is GM worried about the USD/JPY exchange rate?

    3. Using the data in the case, what impact would a 20% depreciation of the JPY have
    on the value of GM?

    [Hint: Follow the steps Feldstein outlines on page 3 of the case. Make assumptions
    where necessary. Notice that you can infer GM’s margin from Exhibit 6 and the
    information on page 4. Assume that there is no operational reaction and that the
    impact persists forever.]

    4. If GM's market value is USD 23 billion, how do you expect GM’s stock would react to
    the news of a 20% depreciation of the JPY?

    5. How could GM manage its exposure to the JPY?

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