Hedging At Porsche Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Hedging At Porsche Case Solution

From a management point of view, the hedging strategy is of little importance, as Porsche once believed that it should protect its exchange rate risk and that exchange rate risk is not dependent on future exchange rates and its development should be part of management at Porsche. The advice is to avoid the financial pitfalls because you can never beat the market.

However, hedging financial risks also serves the long-term interests of Porsche’s management to a large extent, as it saves the company from huge loss incurrences and bankruptcies. Management is looking for this type of safe work and generous bonuses that are only possible if the business is growing and running well even in times of rapid change. Therefore, we can conclude that the interests of shareholders and management are different in terms of Porsche's hedging policy.

Analysis as a Porsche’s CEO

Based on the quantitative analysis, the hedging strategy appears to be a good strategy to hedge Porsche's foreign exchange risk, as the total gain from the use of options and futures strategies exceeds the total gain. without lid. In addition, during the pandemic, there are uncertainties about the currencies of the euro (€) and the US dollar ($) safe haven. Therefore, if the price is $ 1.18, the trading volume is 42,575 vehicles and the profit is $ 1,829,022,000; if not, tap $ 1.84 trading reduces it to $ 378,262,500 and the number of vehicles is 22,925. Collateral is an essential way to reduce risk. The hedging transaction is of great benefit to Porsche, so the company is advised to hedge against.

Porsche’s Ownership Structure

Porsche’s ownership structure can influence management’s hedging strategy in several ways. First, if a majority of independent directors on Porsche’s board of directors oppose Porsche’s aggressive hedging strategy, the company might have to withdraw its hedging strategy and reduce the hedging ratio. Second, a conflict of interest has also been seen in the past, as the company has invested in Volkswagen’s stock options instead of buying shares directly from its own company. Therefore, hedging strategies protect against the financial risks that will harm the company and its shareholders in the upcoming years due to the devaluation of the US dollar against the Euro.

If the U.S. dollar is high, options cannot be used for hedging purposes. Therefore, the cash flow will be equal to the uncovered cash flow, but the purchase of the option contract will have the lowest cost. If the U.S. dollar weakens, cash flows will be similar to future hedging transactions, and again, call options will be the lowest cost(Armeanu, 2017).

The widespread use of options is intended to minimize the risk of future losses. In addition to this, you can increase the return on your investment portfolio and enjoy the additional profits.

Porsche's Strategy

Porsche's hedging strategy is to hedge its exposure to foreign exchange risk. In this option agreement; Porsche’s management signed these two agreements in the form of put and call options. These are money market options that will be used in the future to block the current spot exchange rate to protect exchange rates. Hedging strategies can be evaluated to reduce the risks associated with the foreign exchange hedging. This event will help the business to reduce the financial difficulties of the organization, thereby increasing the need for external funding against the objections of business owners.

Forward and futures contracts are the best choices for hedging against the exchange rate risks, with an aim of reducing the risks associated with Porsche in the coming years when sales are uncertain. In both options, Porsche can protect the foreign exchange market to avoid uncertainty about future sales in the United States.

As the U.S. dollar is stronger than expected; deficiencies can damage the business and its ultimate purpose, which needs to be communicated through the future hedging transactions. If the normal transaction is larger than the actual transaction; the Porsche will be compatible. The two technologies are comparable. The hedging option allows you to keep a strategic distance from costly corporate defaults and obstacles, and the expected transaction is greater than the actual transaction. The unfortunate result is again due to the coverage of foreign trade. Porsche recommends that in order to maintain a strategic distance from external financing and financial difficulties; it is ideal to avoid disadvantages....................

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Hedging At Porsche Harvard Case Solution & Analysis