What are the different types of foreign exchange risk which BMW AG face in their operations? How do they affect the Group?
(a) What is the difference between FX risk and exposure? Explain in the context of BMW’s operations and risk-management efforts.
(b) What is the fundamental imbalance in terms of foreign currencies in BMW’s opera- tions which necessitate such an involved and comprehensive risk management approach? Analyze the origin, evolution, and effect of BMW’s various foreign exchange risks and exposures.
(c) Define and give examples for the following types of foreign-exchange exposures: eco- nomic, contractual, competitive, operating, translation, and transaction exposure in the context of BMW’s operations. You may present your answer in tabular form and should pay attention to potential synonyms and double counting.
(d) Analyze BMW’s economic and competitive exposure and investigate how it has changed over time. What is it and where does it stem from? How you would go about addressing their economic exposure? How would your solution benefit the Group beyond its current hedging strategy?
(e) Explain what is meant by a money-market hedge and provide an example of its usefulness in the context of BMW’s decision problem.
(f) Bonus problem. Define synthetic debt and give an example. How are risk management and funding related in addressing foreign-exchange exposures?
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