BMW’s Foreign Exchange Risk Management
Code
CC-111-010
Date
2011
Industry
Automobiles & Automotives
Length
11Pages
Author(s)
Xu Bin; Liu Ying
Language
English
Discipline
Accounting & Control
Key Words
exchange rate risks
Description
BMW produces the vast majority of its vehicles in Germany, and exports a large quantity to the rest of the world. As a result, the company faces a large amount of foreign exchange risks. BMW uses both natural hedge and financial hedge tools to manage the exchange rate exposure. In terms of natural hedge, BMW adopts two strategies. The first strategy is “Production follows market”. BMW has established factories in the U.S., Britain, China and South Africa. The second strategy is “Purchase follows sales”. BMW has significantly boosted its purchasing and procurement in U.S. dollars, especially in the North American Free Trade Agreement (NAFTA) region. In terms of financial hedge, BMW buys foreign exchange forwards and occasionally some simple option products. The case can be used in courses of international finance and risk management.
Case Sample
