Mcdonald

Case Study

Increasing the Effectiveness of Hedging Interest Rate and Foreign Exchange Risks

“Being able to work with both foreign exchange and interest rates in the same software environment has reduced the learning curve it takes to value instruments. FINCAD Analytics works with just about everything we do.”

Brian Moore, Manager of Financial Markets, McDonald’s

COMPANY OVERVIEW

McDonald’s Corporation (McDonald’s) is the world’s leading and best known global food-service retailer, with nearly 29,000 restaurants in more than 120 countries. In 1967, McDonald’s opened its first foreign country franchise in Canada. Today, more than 65% of total revenue is derived internationally, as more and more restaurants are opened in countries outside the United States, increasing McDonald’s foreign exchange and interest rate risks. McDonald’s Treasury is challenged with managing these risks. This is no small task, as hedging the interest rate and foreign exchange risks for operations based in foreign countries is complex. McDonald’s Treasury is divided into four areas – Cash Management, Financial Markets, Domestic Finance, and International Finance. The Cash Management team takes care of the administration and back office duties of the treasury, while the Domestic Finance and International Finance areas manage the banking relationships for McDonald’s Corporation, franchisees, and suppliers. The Financial Markets group is responsible for hedging the balance sheet and income statement against foreign exchange and interest rate risks, while funding the growth of global operations They often fund assets locally, but in many markets this is challenging. The assets are funded by more than $8 billion in debt, with over 50% of the debt denominated in a foreign currency. McDonald’s uses swaps and options in managing their financial risks.

THE NEED

Brian Moore, Manager of Financial Markets at McDonald’s, identified a need to further increase the effectiveness of the interest...