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FX Risk Hedging at EADS Case Solution & Answer

In 2008, EADS, the European aerospace group which owns Airbus, was faced with the decision of how best to cover a large and growing gap between incomes in dollars and manufacturing costs of the euro. Specifically, the company had to decide whether to continue mainly covering futures, but in much higher amounts and rates increasingly unfavorable, or break with past practice and start using exchange options contracts. The decision would affect the profitability of EADS, cash flow and ability to fund key strategic investment programs for its ability to remain competitive with Boeing. Students have to answer questions about the proper way to measure the risk of exchange rate policy objectives of rational management program risks for a company like EADS participates in a duopoly with Boeing, the differences between the coverage more options on currency futures market, counterparty risk, and hedge accounting, among other considerations.
by
W. Carl Kester,
Vincent Dessain,
Karol Misztal
Source: Harvard Business School
18 pages.
Date Posted: January 16, 2013. Prod #: 213080-PDF-ENG
FX hedging solution for the case of EADS

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