In 2008, EADS was the European Aeronautic Defence and Space Company, which owns Airbus, with the decision of how best to confront a large and growing discrepancy between their dollar sales and its cost of hedging euro. In particular, the company had to decide whether it continues to break primarily for hedging futures, but at much higher levels and more or less favorable terms with past practice and start with foreign exchange option contracts. The decision would have consequences for EA … Read more »

In 2008, EADS was the European Aeronautic Defence and Space Company, which owns Airbus, with the decision of how best to confront a large and growing discrepancy between their dollar sales and its cost of hedging euro. In particular, the company had to decide whether it continues to break primarily for hedging futures, but at much higher levels and more or less favorable terms with past practice and start with foreign exchange option contracts. The decision could have implications for EADS profitability, cash flow, and its ability to fund strategic investment programs critical for its ability to compete with Boeing. Students must ask the proper way to measure foreign exchange risk, the objectives of a rational risk management policy and program for a company like EADS competing in a duopoly with Boeing to address the differences between hedging with currency options against FX futures, counterparty risk, and hedge accounting , among other considerations.
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from
W. Carl Kester,
Vincent Dessain,
Karol Misztal
Source: Harvard Business School
18 pages.
Release Date: 16 January 2013. Prod #: 213080-PDF-ENG
FX risk hedging at EADS HBR case solution

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