This case study analysis seeks to answer the question of how a multinational firm should manage foreign exchange exposures? It looks into the transactional and transitional exposures and the possible responses to these exposures. It discusses the two specific hedging decisions by General Motors and shows the company's corporate hedging policies and how internal rules affect hedging decisions. The firm has to put into consideration getting away from the required policies. It depicts exposure to the Canadian dollar with adverse accounting effects and to the Argentinean currency when devaluation is foreseen. It analyzes the foreign exchange hedging strategies that General Motors undertook in each situation.

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2. 1. Should multinational firms hedge foreign exchange risk? If not, what are the consequences? If so, how should they decide which exposures to hedge?
3. 2. What do you think of GM’s foreign exchange hedging policies? Would you advise any changes?
4. 3. Should GM deviate from its policy in hedging its CAD exposure? Why or why not?
5. 4. If GM does deviate, how should GM think about whether to use forwards or options for the deviation from the policy?
6. 5. Why is GM worried about the ARS exposure? What operational decisions could it have made or now make to manage this exposure?