Please read the Hedging at Porsche case (you can buy the case packet here) and prepare for the class discussion by answering the following questions.
1. According to the case, why does Porsche hedge its foreign exchange exposure? From the perspective of Porsche’s stock market shareholders at the time of the case, does it make sense for Porsche to hedge?
2. Suppose it is the end of November 2007, and Porsche reviews its hedging strategy for the cash flows it expects to obtain from vehicle sales in North America during the calendar year 2009. The exchange rate at the end of November 2007 is $1.47/€.
Assume that Porsche entertains three sales scenarios:
In the baseline scenario, the expected volume of North American sales in 2009 is 32,750 vehicles.
The low-sales scenario assumes that sales are 30% lower than the baseline sales volume.
The high-sales scenario assumes that sales are 30% higher than the baseline sales volume.
Assume, in each scenario, that the average sales price per vehicle is $90,000 and that all sales are realized at the end of November 2009 (this is a simplifying assumption). All variable costs incurred by producing and shipping each additional vehicle to be sold in North America in 2009 are billed in € and amount to €60,000 per vehicle.