Question
1. Describe GMs hedging policy with regard to transactional and translational exposures. Your answer should include what GM hedges, how much is hedged, what hedging
1. Describe GMs hedging policy with regard to transactional and translational exposures.
Your answer should include what GM hedges, how much is hedged, what hedging
instrument/s is/are used, where the hedges are done, and when does GM deviate from
its hedging policy.
2. What types of CAD exposures does GM have? Explain why fluctuations in the
CAD/USD exchange rate affect GMs (parent company) income statement.
3. Given the current spot rate is 1.5780 CAD/USD, show the impact on GMs EPS
(earnings per share) when the CAD becomes (a) stronger at 1.5291 CAD/USD, and (b)
weaker at 1.6269 CAD/USD, when only translational exposures are considered.
4. Using the same set of exchange rate scenarios in Question 3, show the impact on GMs
EPS with a (a) 50% hedge policy, and (b) 75% hedge policy, when only transactional
exposures are considered. (Hint: excess cash reduces the required hedge amount).
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