1. Why does Porsche hate its foreign exchange exposure? Does it make sense from the prospective of shareholder for Porsche to hedge? Does it make sense from management's perspective? Are there potential differences in interest between management and shareholders regarding the hedging policy? 2. Suppose it is end of November 2007 and Porsche reviews its hedging strategy for the cash flow it expects to obtain from vehicle sales in North America during the calendar year 2009 follow siop assume that Porsche entertains 3 scenarios: i. The expected volume of North America sales in 2009 is 32,750 vehicles. ii. The low sales senario is 30% lower than the expected sales volume. iii. The high sales scenario is 30% higher than the expected sale value. Assume in each seenario that the average sales price per vehicle is $90,000 and that all sales are realized at the end of November 2009. All variables cost incurred by producing and shipping an additional vehicle to be sold in North America in 2009 are built in Europe and amount to 60,000 per vehicle. Characterize how Porsche's cash flow, net of variable cost, obtained from its North American sales depend on the spot exchange rate that prevails at the end of November 2009 if: A. Porsche does not hedge its currency exposure at all. B. Porsche hedge by selling forward U.S. dollar equal to that amount of expected 2009 sales with a two year forward contract. C. Porsche hedges by buying two years European at the moncy put option on the US dollar (providing to Porsche the right to sell U.S. dollar receiving curo at the strike exchange rate) in sufficient quantity to have the right to sell an amount of U.S. dollar equal to expected 2009 sales. 3. Based on your analysis of question two, what's your view on the foreign exchange hedging strategy and the hedging instrument chosen by Porsche? If you were Porsche CEO's, would you implement a different strategy? If yes, why? If no why not? 4. How might Porsche's ownership structure influence the hedging strategy pursued by management. 5. Do you think Porsche strategy of using option to acquire a stake in Volkswagen VW instead of buying stocks directly is a sensible one? Or do you agree with the crities who argued that Porsche was speculating with shareholders money and that it had become a hedge fund that neglected its core business