For this week’s Discussion, review the article, “Foreign Exchange Hedging Strategies at General Motors: Competitive Exposures.” Think about Eric Feldstein’s situation at General Motors. He wants to develop a hedging policy that does a better job in managing GM’s risks due to foreign exchange. Consider how the exchange rate movements can affect profits, sales, and trade flows. For example, as the U.S. dollar devalues, U.S. products become less expensive to foreign buyers, but the cost of imported parts used in the production of cars increases. Think of how you would design policy guidelines to manage foreign exchange and competitive exposures.
Post by Day 3 an explanation of key influences that exchange rate movements have on global businesses in areas such as profits, sales, trade flows, and the value of foreign assets (e.g., plant and equipment in another country). Then, provide a policy strategy guideline for GM’s hedging policy that might protect it from the effects you cited. Explain your rationale and provide citations from the Learning Resources to support your answer.
Please use the following material for the article and additional sources.
Borker, D. R. (2012). Accounting, culture, and emerging economies: IFRS in the BRIC countries. Journal of Business & Economics Research, 10(5), 313–324. Retrieved from the Walden Library databases. This article compares the cultural values of BRIC nations with an IFRS accounting profile and describes the progress of convergence to IFRS standards.
Desai, M. A., & Veblen, M. F. (2006). Foreign exchange hedging strategies at General Motors: Competitive exposures (Harvard Business School Case No. 205-096). Retrieved from http://cb.hbsp.harvard.edu/cb/pl/19690620/19907717/374bd7a266f76d839f959efcc48a15cc General Motors (GM) is the largest automobile manufacturer in the world, with sales in almost every country. Managing the financial exchanges among so many countries presents a significant challenge to companies such as GM. To provide some stability to foreign exchange, GM uses hedging strategies.
Rebelo, S. (2008). Managing foreign exchange risk: Acquiring Nusantara Communications, Inc. (Kellogg School of Management Case No. 5-208-252). Retrieved from http://cb.hbsp.harvard.edu/cb/pl/19690620/19893916/7c893c4625c54e908695455557331751 The case study provides a scenario where factors related to exchange rate risks are evaluated.
National Export Initiative. (2010). Financing your small business exports, foreign investments or projects. Retrieved from http://www.sba.gov/sites/default/files/oit_finance_sba_exports_pdf.pdf This document outlines federal programs designed to support small business expansion into global markets.
Export.gov. (n.d.). Chapter 12: Foreign exchange risk management. Retrieved from https://new.export.gov/trade-finance-guide/12-foreign-exchange-risk This chapter explains the foreign exchange rate risks faced by many small and medium-sized enterprises (SMEs) and the hedging strategies used to manage them.
Curle, R. (n.d.). Expanding internationally: Grow as you go. Retrieved from http://www.inc.com/articles/1998/05/17667.html This article discusses different financial strategies used in international expansion of small businesses.
Hague Conference on Private International Law. (n.d.). Welcome to the Apostille section. Retrieved from http://www.hcch.net/index_en.php?act=text.display&tid=37 This site contains publications on the practical operation of the Apostille Convention, an international co-operation and litigation section within the Hague Conference.