Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures Harvard Business School Case 205-095

Course Software 205-712 This course software was prepared solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright 2005 President and Fellows of Harvard College. No part of this product may be reproduced, stored in a retrieval system, used in a spreadsheet or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording or otherwisewithout the permission of Harvard Business School.

Exhibit 1 GM Consolidated Income Statement

December 31, ($ millions) Total net sales and revenues Cost of sales and other expenses Selling, general, and administrative Interest expense Earnings before taxes and minority interests Income tax expense Equity income (loss) and minority interests Income from discontinued operations Net income Dividends on preference stocks Earnings attributable to common stocks

2000 184,632 145,664 22,252 9,552 7,164 2,393 (319) 4,452 (110) 4,342

1999 176,558 140,708 19,053 7,750 9,047 3,118 (353) 426 6,002 (80) 5,922

1998 155,445 127,957 15,915 6,629 4,944 1,636 (259) (93) 2,956 (63) 2,893

Source: General Motors, December 31, 2000 10-K (Detroit: General Motors, 2001).

Exhibit 6 GMs Largest Currency Exposures (Forecasted Receivables Less Payables)

As of 12/31/00 ($millions) GMNA GME GMAP GMLAAM GM Total

USD

EUR

JPY

GBP

SEK

AUD

CAD

CHF

PLN

MXP

OTHER

800 400 200 600 2000

(400) (2400) (200) (400) (3400)

200 200 500 900

1400 200 1600

(200) (800) (1000)

400 200 600

(1400) (200) (1600)

400 400

200 200

1200 1200

800 200 1000

Source: General Motors Figures have been disguised and do not reflect the actual operations of General Motors Corp. NOTES: GMNA: General Motors North America GME: General Motors Europe GMAP: General Motors Asian Pacific GMLAAM: General Motors Latin America, Africa, Middle East

Exhibit 9 GM Canada Projected Cash Flow Exposure

Cash Flows INFLOWS Canadian sales Tax refunds (GST) OUTFLOWS Material purchases Capital expenditures Other structural costs Tax expenditures Other expenditures 12 month C$ cash flow forecast (10,180) (113) (1,737) (1,258) (6) (1,682) Amount as of September 30, 2001 10,564 1,049

Source: Company documents. Figures have been disguised and do not reflect the actual operations of General Motors Corp.

Exhibit 10 GM Canada Net Monetary Asset/Liability Exposure

Balance Sheet Account Amount as of September 30, 2001 683 271 118 1525

ASSETS Cash & cash equivalents Accounts & notes receivable Deferred income taxes Pension asset LIABILITIES Outside all other Other postretirement benefits Warranty Accounts payable and other C$ Monetary asset / (liability) position

(93) (1949) (132) (2565) (2143)

Source: Company documents.

Figures have been disguised and do not reflect the actual operations of General Motors Corp.

Exhibit 11 GM Argentina Balance Sheet, Monetary Assets and Liabilities by Currency, as of September 30, 2001
ARS Monetary Assets Scrap incentive owed by govt. Interest subsidy owed by govt. VAT credit and other tax owed by govt. Receivable (tax credit reimbursement) Other Total USD Monetary Assets Cash Receivables Total 2.5 20.5 23.0 45.8 3.2 130.6 2.7 7.8 190.0 ARS Monetary Liabilities Payables to local suppliers Provisions to local suppliers ARS loan (VAT financing) Other provisions Tax payable Total USD Monetary Liabilities Accounts payable Loans Total 224.5 101.3 325.7 24.1 11.3 13.7 9.8 2 60.9

Source: Company documents. Figures have been disguised and do not reflect the actual operations of General Motors Corp.

Exhibit 13 Cost of Hedging the ARS Exposure in Argentina

Time Horizon / Hedging Period One-month Forward Three-month Forward Six-month Forward Twelve-month Forward

Cost $6.40 $18.20 $28.70 $40.30

Source: Company documents.