Foreign exchange hedging strategy at general

B Transaction Exposure: Transaction exposure is known as the degree to which the value of the future cash transaction is affected by the fluctuation of exchange rates Madura and Fox, 2.

Which other currency should gm really worry about

Alternative strategies can also be used by netting off the amount or using futures however for that managements time will be an issue. GM- Canada is subject for transaction exposure although USD is the functional and operating currency. Revised October App-2 Translational risk is usually not hedged by the firms however if its impact is significant on the earnings of a company then hedging it is a safer option. Despite operations in Argentina leave GM sensitive to the economic and political situation in Argentina, the potential devaluation in ARS would bring a commercial advantage to GM. In this essay, we will go through the types of FX exposure that GM faces, how GM had managed foreign exchange risk, and how effective GM hedging strategies are. The management should consider operation in low value currencies to have cost advantage and this will imply more translation exposure that the company should think about. The report addresses the problem given in scenario which is the change in policy of hedging with detailed reasoning. The argue against hedging FX was built on the PPP theory as it states that changes in price levels in two countries will offset the exchange rate. One matter is the companys exposure to the foreign exchange risk arises from Canadian subsidiary which has functional currency USD so CAD is foreign currency for this subsidiary. However, volatility in cash flows is the concerns not only managers, but regulators and shareholders as well. S dollar is the functional and operating currency of GM- Canada, it is not subject to translation exposure although it is subject to transaction exposure and will be discussed below. The difference is volatility is due to higher level of uncertainty involved in non hedged amount. Particularly forward rates contract and options are used. How should NG go about convincing its customers?

Translation risks should also be discussed and impact of them on income statement should be estimated. However, volatility in cash flows is the concerns not only managers, but regulators and shareholders as well.

Foreign exchange hedging strategies at general motors solutions

App-2 Translational risk is usually not hedged by the firms however if its impact is significant on the earnings of a company then hedging it is a safer option. The company should make it centralized fully and try to net-off the amounts and should created best possible profitable results according to USD not local currencies. The report then looks at the different available hedging instruments to the firm. Despite operations in Argentina leave GM sensitive to the economic and political situation in Argentina, the potential devaluation in ARS would bring a commercial advantage to GM. As currency exchange rate fluctuates, the financial position of GM and its competitive position are influenced. It has its advantages and disadvantages both. In this essay, we will go through the types of FX exposure that GM faces, how GM had managed foreign exchange risk, and how effective GM hedging strategies are.

Different hedging strategies for Canadian dollar risk are used. The options were more profitable to the firm that has been recommended. The country has very poor economic situation with no reforms and recent devaluation of currency has caused the managers to think over the strategy that should be followed.

In this case where we can easily see that local currency is devaluing with great pace we should look for a long term strategy.

what do you think of gm?s foreign exchange hedging policies? would you advise any changes?

App-2 Translational risk is usually not hedged by the firms however if its impact is significant on the earnings of a company then hedging it is a safer option. GM basically changed its hedging policy and passive approach replaced active one due to minimize the resources deployed for managing FX risks and for cost effectiveness purposes as well.

Another argument states that future spot exchange rate is difficult to predict, hence hedging is like gambling, however hedging is a planning tool to focus on the future not to guarantee results.

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