Foreign Exchange Hedging: Case Studies and Strategies

Sask Power

1. Should multinational firms hedge foreign exchange rate risk?  If not, what are the consequences?  If so, how should they decide which exposures to hedge?

2. What do you think of GM’s foreign exchange hedging strategies?  What changes if any would you advise?

3. Should GM deviate from its policy in hedging its CAD exposure?  Why or why not?

4. If GM does deviate from its formal policy for CAD exposure, how should GM think about whether to use forwards or options for the deviation from the policy?

5. Why is GM worried about the ARS exposure?  What operational decisions can be made to help manage the exposure?

1. Why do firms borrow in foreign currencies?  Was Sask Power justified in borrowing in US dollars?

2.Should Sask Power be concerned with fluctuations in the U.S. dollar exchange rate?

3.What is a foreign currency swap?  Can foreign currency swaps help Sask Power hedge the currency exposure in its U.S. dollar debt?

4.How would you assess whether the swap proposed in the case is a fair deal?

5.If you were in the place of the management of Sask Power in 2002, would you consider hedging the currency exposure?  If yes, which hedging strategy would you adopt?  

1.Given the information in the case, how does the future of the Canadian travel industry look over the next six (6) months?  Over the next year.

2.Do you expect the value of the Canadian dollar to increase/decrease/remain the same over the next six (6) months?  Over the next year.

3.Are your answers to questions 1 and 2 related?

4.As an advisor to Dupuis, what would you suggest that he do regarding the foreign exchange risk associated with this contract