Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures

Posted: 16 Aug 2006

See all articles by Mihir A. Desai

Mihir A. Desai

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Date Written: August 2006

Abstract

How should a multinational firm manage foreign exchange exposures? The case examines transactional and translational exposures and alternative responses to these exposures by analyzing two specific hedging decisions by General Motors. Describes General Motors' corporate hedging policies, its risk management structure, and how accounting rules impact hedging decisions. The company is considering deviations from prescribed policies because of two significant exposures: an exposure to the Canadian dollar with adverse accounting consequences and an exposure to the Argentinean currency when devaluation is widely anticipated. Students must evaluate the risks General Motors faces in each situation and consider which hedging strategy - if any - might be appropriate. Asks students to analyze the financial costs and accounting treatment of alternative derivative transactions for hedging purposes.

Suggested Citation

Desai, Mihir A., Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures (August 2006). HBS Publishing Case No. 9-205-095; Teaching Note No. 5-206-031. Available at SSRN: https://ssrn.com/abstract=924636

Mihir A. Desai (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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