Using the case from HBR Foreign Exchange Hedging Strategies at General Motors: Competitive Exposures

Questions: 1. On page 3 of the case, Feldstein lays out a compelling case to measure the competitive exposure GM faces vis--vis the yen. Using the information in the case and a 20%-yen devaluation, fill in each step (i.e., steps on page 3 of case) to determine GM's competitive exposure.

2. Suppose that you do not have detailed information or data on GM or its foreign competitors. Instead, you run a regression of GM's stock returns on exchange rate changes and the market risk premium (return on market minus the Treasury rate). From this regression, you obtain a GM yen/dollar exchange rate exposure coefficient of -0.33, indicating that GM's value declines as the yen depreciates relative to the dollar. Suppose the yen depreciates by 20% and GM's market value was about $23 billion in 2001. Use the exposure coefficient to determine GM's competitive exposure and compare this result with your results in the previous question (#1 above).