Topic: International Finance –BMW: Currency Hedging 2007
Paper instructions:
Case Analysis
The detailed analysis of the case should start with a one-half page executive summary with the issue and the major recommendations. It will then include an introduction, where the students illustrate the problem faced by the firm and its background, a main section that will provide the details and evaluate the alternatives, and a conclusion with the specific recommendations. For each case, I will provide a few questions to help with analysis. However the write up should not be limited to answering such questions. I expect the reports to be 8 pages (double-spaced, 12 point font) maximum, excluding the summary, tables and graphs. Supporting tables, spreadsheets and graphs (the exhibits) are limited to 10 pages. The exhibits should be referred to in the text of the paper as they are needed to support the argument being made. Exhibits that are not needed should not be included and all exhibits should be referenced in the paper.
The case can be found here:
http://educompcentrallibrary.files.wordpress.com/2012/11/hrvd-bmw-currency-hedging-2007.pdf
Questions to be answered in the case
• How would you evaluate BMW’s transaction and economic exposure?
• What do you think of BMW’s hedging strategy?
• Would you consider a range of 1.15 to 1.17 USD/Euro to be an appropriate equilibrium rate? How would you forecast future exchange rate?
• According to BMW’s net exposure and its hedging strategy, how big do you think the impact of currency fluctuations is on profits and its stock market value? How would you quantify it?
• BMW likes to follow a natural hedging strategy for its operations. How can this strategy help the firm in minimizing its USD exposure?
