Gm Competitive Exposure International Finance

Foreign Exchange Hedging Strategies

General Motors: Competitive Currency Exposure

Group Project for International Finance

Submitted to:

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Submitted by: Group6(Section B)

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Contents

1. INTRODUCTION 2

Types of Risks Faced by GM 2

Transaction Risk 2

Translation Risk 2

Why do Companies Hedge? 2

2. COMPETITIVE CURRENCY EXPOSURE AT GM (2001: Using Case Info) 3

2.1 Performance 5

2.2 Automobile Market in USA 6

2. 3 Competitive Exposure Mechanism 7

2.4 Yen Exposure Quantified 7

3. APPROACHES TO MANAGE GM’s COMPETITIVE EXPOSURE 8

4. GM’s COMPETITIVE YEN EXPOSURE (993-2005) 11

4.1 GM’S US Car Sales Exposure 12

4.2 GM’S Market Share Exposure 13

4.3 GM’S Net Income Exposure 14

4.4 Implication of result on hedging strategy 15

5. NEW GM’s COMPETITIVE EXPOSURE 16

5.1 Issue in measuring quantifying exposure using regression 17

5.2 GM’s Unit Sales Exposure (Worldwide) 17

5.3 GM’s Auto Revenue Exposure (Worldwide) 19

5.4 Moving to a net income like exposure 20

5.5 Hedging the resulting exposure 21

6. CONCLUSION 21

7. SOURCES USED for INFORMATION 22

1. INTRODUCTION

General Motors is a large multinational enterprise with operations in more than 200 different countries. It is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's largest automaker (2001). It employs 365,000 people in every major region of the world. It produces cars and trucks in 30 countries, and sells and services these vehicles through the following divisions/brands: Buick, Cadillac, Chevrolet, GMC, Opel, Vauxhall, and Holden, as well as two joint ventures in China.

Types of Risks Faced by GM

Transaction Risk

The exchange rate risk associated with the time delay between entering into a contract and settling it. The greater the time differential between the entrance and settlement of the contract, the greater the transaction risk, because there is more time for the two exchange rates to fluctuate...