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Written Case Analysis... LUFTHANSA 2012

Lufthansa faced foreign exchange risk from its planned purchase of new aircraft from Boeing, which were priced in dollars. This exposed Lufthansa to risk from fluctuations in the dollar/euro exchange rate between the order date and delivery dates years in the future. The CEO considered hedging the full purchase price, hedging part of the price, or not hedging at all. Hedging the full amount reduced risk but also meant losing money if the dollar weakened. Hedging part of the purchase balanced risk reduction with some upside from dollar movements. The CEO chose to hedge part of the purchase to get a mix of downside protection and upside potential.

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Girish Dasari
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550 views2 pages

Written Case Analysis... LUFTHANSA 2012

Lufthansa faced foreign exchange risk from its planned purchase of new aircraft from Boeing, which were priced in dollars. This exposed Lufthansa to risk from fluctuations in the dollar/euro exchange rate between the order date and delivery dates years in the future. The CEO considered hedging the full purchase price, hedging part of the price, or not hedging at all. Hedging the full amount reduced risk but also meant losing money if the dollar weakened. Hedging part of the purchase balanced risk reduction with some upside from dollar movements. The CEO chose to hedge part of the purchase to get a mix of downside protection and upside potential.

Uploaded by

Girish Dasari
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Institute of Public Enterprise

(Osmania University Campus, Hyderabad) PGP: III Semester Risk Management and Derivatives Assignment for Internal Assessment Written Case Analysis: LUFTHANSA: TO HEDGE OR NOT TO HEDGE Date: 04/09/2012 Last Submission Date: 12/10/2012 General Instructions 1. All questions are compulsory which are based on the LUFTHANSAs Case 2. Answer the questions in the space provided. Name: Roll Number: 1. What is the Foreign Exchange Risk faced by the LUFTHANSA?

2. What alternatives did Lufthansas CEO was considering and why?

3. According to you how each individual alternative to hedge the possible foreign

exchange risks may be beneficial or not beneficial to the company?

4. Why the Lufthansas CEO was considering to hedge a part of the purchase price?

5. If you were in Lufthansas CEO position which hedging strategy you would have chosen and why?

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