General Motors

9-204-024

REV: MAY 9, 2005

MIHIR A. DESAI

Foreign Exchange Hedging Strategies at General Motors

In September of 2001, Eric Feldstein, Treasurer and Vice President, Finance for General Motors, Corp. paid little attention to his unobstructed view of Central Park from his office far above the Manhattan traffic. He had three risk management decisions to make: what to do about (i) GM’s billion dollar exposure to the Canadian dollar, (ii) GM’s exposure to the Argentinean peso in light of the expected devaluation in the months ahead, and (iii) the continuing strategic concern about fluctuations in the Japanese yen, which figured so heavily into the cost structures of some of GM’s competitors. Feldstein and his treasury team were responsible for all of GM’s monetary transactions and for managing the myriad risks associated with the timing of those transactions. They handled everything from investing excess cash from vehicle sales receipts to hedging currency risks when a foreign subsidiary like Opel Austria announced it would remit a dividend to the worldwide parent company. The GM Treasury program invested heavily in its people, rotating them through functional positions and offices around the world, developing their skills and experience. The unit continued to produce individuals who went on to senior finance positions with GM subsidiaries or elsewhere within the GM organization or left for senior roles at other major U.S. companies. As GM expanded around the world, the magnitude of its exposures to foreign currencies grew. Because exchange rate swings created gains and losses that flowed through GM’s reported income statement, it was essential from a planning and management perspective to understand GM’s foreign exchange flows and to manage the amount of earnings and cash flow volatility they imposed on GM. Feldstein constantly followed news on volatile political situations around the world and kept abreast of macroeconomic trends that might affect GM’s...