solution - GM Motors - GM's Foreign Exchange Hedging...

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GM’s Foreign Exchange Hedging Strategy Foreign Exchange Hedging Foreign Exchange Hedging Strategies at General Strategies at General Motors: Transactional and Motors: Transactional and Translational Exposures Translational Exposures Competitive Exposure Competitive Exposure 1
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GM’s Foreign Exchange Hedging Strategy About General Motors (GM) and its Foreign Exchange Policy Since the early 1930, General Motors has enjoyed the status of being one of the largest card manufacturers in the world. As per the financial statements of 2000, GM earned a net profit of $4.4 billion on sales of $184.6 billion. Though the company enjoyed selling majority of its production in USA, it is fast getting its foothold in the international market and it has also reached to the level of 18% of the total sales. Following are the objectives of the GM’s foreign exchange risk management policy: a) Reduction in cash flow and earnings volatility b) To save the valuable management time c) Reduce the costs directly associated with FX management As of now, the company has only been managing the cash flow exposure (which is transaction exposure) and not the balance sheet exposure (which is translation exposure). The company had adopted the policy of hedging the 50% of all the significant foreign exchange exposure arising out of receivables and payables. For the exposures arising with in the six months, the company has adopted to hedge through forward contracts and in respect of the exposure from seven to twelve months, the company has adopted to hedge the risk through options. The overall exposure of GM through forecasted receivables and payables is that of $900
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This note was uploaded on 05/13/2010 for the course MECH 17657 taught by Professor Ravikant during the Spring '10 term at Indian Institute of Technology, Delhi.

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solution - GM Motors - GM's Foreign Exchange Hedging...

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