Gm vs Southwest Hedging Strategy

Financial fortune is the risk a corporation faces overdue to its exposure to market factors such as interest rates, immaterial exchange rates, commodities and stock worths. Financial risks for the or so part, crapper be surroundd due to the existence of large, efficient markets through which these risks can be transferred. This is unlike operating risk, which is associated with more manufacturing and marketing activities. run risk cannot be hedged because these risks are not traded. In GMs case they used a unresisting hedgerow policy in which they hedged 50% of every(prenominal) significant foreign exchange exposures arising from cash flows associated with ongoing business. in prompt hedgerow is used by highly risk-averse companies that would like to be completely certain of their future cash flows through hedging a significant portion of their risk exposure. This can be achieved by locking in a specific price either through long- term contracts between a supplier and buyer, or through a derivatives contract such as futures, in advance or swaps, which are available on most leading commodity exchanges. In the case of GM, they used forward contracts to hedge exposure arising within six months.

GMs longer-term strategy is that of options, which allows them to either buy or sell in the spot market without necessarily being committed to hedge contract. But such a method imposes a healthy hedging cost in the form of option premiums which put on to be paid up front at the fourth dimension of hedging. The hedging strategy that I have chosen is that of southwestern United States Airlines strategy over the past decade. Up until the 3th quarter of 2008 they enjoyed 69 straight quarterly profits dating back to 1991. In 2008 Southwest had over 70% of its fuel needs hedged at around $51 a barrel. Using an active hedging strategy Southwest is able to manage its risk without diminishing its long-term returns. Southwest is able to achieve a balance between hedging risk and the cost of hedging by hedging part of its overall exposure either... If you postulate to get a full essay, order it on our website: Orderessay

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