Foreign Exchange Hedging Strategies at General Motors

 

FOREIGN EXCHANGE STRATEGIES AT GENERAL MOTORS: COMPETITIVE EXPOSURES

PRESENTED BY:

NARENDRA KUMAR SHAKYA (2015PGP (2015PGP030) 030) RAMESH SINGH (2015PGP038)

 

FOREIGN EXCHANGE STRAT STRATEGIES EGIES AT GENERAL MOTORS: COMPETITIVE EXPOSURES

General Motors was the world’s largest largest automaker in year 2001.  Unit Sold by GM in 2001 : 8.5 million ehi!les. 15.1" o# world market share.  Generated earnings : $%.% billion on sales o# $18%.& billion.  'orth (meri!a : )*+hibit 2,  Ma-ority o# sales to end !ustomers.  argest /on!entration o# net roerty lant and euiment.  

 

GM’s Corporate Hedgig po!i"#

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GM’s global oerations gie rise to !urren!y risks.



3isks managed by treasurer’s 4##i!e.

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ey 4b-e!ties o# GM’s 67 risk management oli!y were as:

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3edu!e !ash #low and earnings olatility.  Minimie the management time and !osts dedi!ated to 67.

 

(lignment o# 67 management with GM business oeration units.

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GM #ollow assie hedging strategy with limited management time sent on 67 management.

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6eldstein monitored 67 e+osures and also #o!us on those risks r isks whi!h was not !oered by hedging oli!y and ossibly not dire!t or indire!t e##e!t on GM’s business.

 

Istr$%et $sed &or 'edgig a"ti(it# )# GM are : 

GM adoted 9assie edging 9oli!y whi!h generally hedge hedge to 50". o# risk due to 67 e+osure.

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Signi#i!ant 6oreign e+osures !omes #rom !ash #lows

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)3e!eiable ; 9ayables, 1.6orwards 1. 6orwards !ontra!ts)  !ontra!ts) hedging within &months,

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2. 4tions)hedging aanese yen was as result o# !ometing against !omanies with di##erent homes !urren!ies.



Ma-or >aanese automakers automakers !ost stru!ture denominated in ?*'.

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owered !ost stru!ture adantage to !ometitors. ! ometitors.



3isk due to lowered !ost stru!ture eroded market share and market alue.



>aanese automakers deried 5&" and %@" o# their reenue #rom US market in 1AAA and 2000 rese!tiely.

 

Meas$rig Co%petiti(e E*pos$res 

*+osure as a !ometitie rather than a #inan!ial one as er 6eldstein.

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Bottom ine Cma!t)net ro#it, arise #rom #lu!tuations in





e+!hange rates. a!k o# an e+li!it transa!tion 6eldstein was away #rom hedging  oli!y..  oli!y 6eldstein #orm a story #or -usti#ying the magnitude o# e+osure and how it !ould be e##e!tiely hedged.

 



/hain o# *ents

1, 2,

Dere!iation o# ?en. Cn!reased gross margin #or >aanese automakers.

@,

9assing bene#it to the end !onsumer 

%, 5,

De!rease in unit sales o# GM 3edu!ed GM ro#it

&,

ower market alue

 

 

Net Estimated Competitive Exposure  

(50% is t!"# $" &'  Pssi*" H"+,i#, -&.i$)

/&"$i. E-&s" (A/ "$"i*.")

400 i..i&#

 

/&"$i. E-&s" "+,"+ &#. '& 50%

650 i..i&#

 

I#*"st"#t E-&s" ( 7-#"s" i)

 

B&#+ Iss"

291 i..i&# 500 i..i&#

  T&t.  

395 Bi..i&#

 

934B*M 934B *M SE(E SE(E*M*'E *M*' E



Fuanti#y GM e+osure.

 

3e!ommendation or de!isions on managing GM risk. edging strategies.

 

HE+GING INSTRUMENTS   T;TA< AM;UNT THAT NEEDS T; BE HEDGED

 

HEDGING INSTRUMENT

(50% is t!"# $" &'  Pssi*"

/&"$i. E-&s" (A/

H"+,i#, -&.i$)

"$"i*.")

400 i..i&#

/&"$i. E-&s" "+,"+ &#. '& 50%

650 i..i&# I/E t"s

I#*"st"#t E-&s" ( 7-#"s" i) B&#+ Iss"

T&t.

Usi#, ET '#+ .i!" 291 i..i&# /AR=> ADRA 500 i..i&# G G& &*"#"#t &#+

395 Bi..i&#

 

 

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