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At the beginning of 1995, General Motor's pension funds were under funded (i.e., the value of their liabilities exceeded the value of their assets) by
At the beginning of 1995, General Motor's pension funds were under funded (i.e., the value of their liabilities exceeded the value of their assets) by $9.3 billion. Even though the company injected $10.4 billion during the year, at the end of 1995 the pension funds were still underfunded. Knowing that interest rates dropped during 1995, explain what must have happened. Describe a strategy with which GM could have hedged its interest rate risk and discuss the limitations of this strategy.
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