Case Questions Herr Ruhnau was accused of making the following four mistakes: 1. Purchasing the Boeing...

Transcribed Image Text:

Case Questions Herr Ruhnau was accused of making the following four mistakes: 1. Purchasing the Boeing aircraft at the wrong time. The U.S. dollar was at an all-time high at the time of the purchase, in January of 1985. 2. Choosing to hedge half the exposure when he expected the dollar to fall. If he had gone through with his instincts (bnnng) or expectations, he would have left the whole amount unhedged (which some critics have termed "whole hog"). 3. Choosing to use forward contracts as his hedging tool instead of options. The purchase of put options would have allowed Herr Ruhnau to protect himself against adverse exchange rate movements while preserving (boton) the flexibility of exchanging DM for dollars spot if preferred. 4. Purchasing Boeing aircraft at all. Germany, as well as the other major European Economic Community countries, has a vested (ctraocho) interest in the conglomerate (tpon) Airbus. Airbuss chief rival was Boeing in the manufacture of large long-distance civil aircraft. ( tu bay) Given these criticisms, should the Board of Lufthansa retain Herr Heinz Ruhnau as Chairman? How should Ruhnau justify his actions and so justify his further employment? Case Questions Herr Ruhnau was accused of making the following four mistakes: 1. Purchasing the Boeing aircraft at the wrong time. The U.S. dollar was at an all-time high at the time of the purchase, in January of 1985. 2. Choosing to hedge half the exposure when he expected the dollar to fall. If he had gone through with his instincts (bnnng) or expectations, he would have left the whole amount unhedged (which some critics have termed "whole hog"). 3. Choosing to use forward contracts as his hedging tool instead of options. The purchase of put options would have allowed Herr Ruhnau to protect himself against adverse exchange rate movements while preserving (boton) the flexibility of exchanging DM for dollars spot if preferred. 4. Purchasing Boeing aircraft at all. Germany, as well as the other major European Economic Community countries, has a vested (ctraocho) interest in the conglomerate (tpon) Airbus. Airbuss chief rival was Boeing in the manufacture of large long-distance civil aircraft. ( tu bay) Given these criticisms, should the Board of Lufthansa retain Herr Heinz Ruhnau as Chairman? How should Ruhnau justify his actions and so justify his further employment?