Case Study: BMW: Financial Risk Management

BMW GROUP – FINANCIAL RISK MANAGEMENT

SUMMARY :

The case below states the exchange rate risk which BMW went through, since BMW is worldwide known preferred car and deals in different currency, for which any fluctuations in the currency in the local market would affect the overall revenue of the firm and that is why they were in loss in the year 2005-2009 which made it a point to cover the loss by building up strategies and implementing it. One such strategy was to deal the contract in the currency of the local market so that there is no loss, It will be easier for the customer not to incur the cost of the exchange rate.

The Challenge: BMW had good profits, apart from rising in the sales revenue, BMW faced the challenge that the profits which

The Strategy. BMW approach two approaches to deal with the remote trade presentation.

One technique was to utilize a "characteristic fence" – meaning it would create approaches to burn through cash in the same money as where deals were occurring, which means incomes would likewise be in the nearby coin.

Be that as it may, not all presentation could be balanced along these lines, so BMW chose it would likewise utilize formal money related supports. To accomplish this, BMW set up provincial treasury focuses in the US, the UK and Singapore.

How the strategy was implemented. The natural hedge strategy was implemented in two ways. The first involved establishing factories in the markets where it sold its products; the second involved making more purchases denominated in the currencies of its main markets.

BMW now has production facilities for cars and components in 13 countries. In 2000, its overseas production volume accounted for 20 per cent of the total. By 2011, it had risen to 44 per

The organization helped its acquiring in US dollars for the most part, particularly in the North American Free Trade Agreement district. Its office in Mexico City made $615m of buys of Mexican automobile parts in 2009, anticipated that would rise essentially in taking after years.

A joint endeavour with Brilliance China Automotive was set up in Shenyang, China, where a large portion of the BMW autos available to be purchased in the nation are currently made. The carmaker additionally set up a nearby office to offer its gathering some assistance with purchasing office to choose aggressive suppliers in China. Before the end of 2009, Rmb6bn worth of buys were from neighborhood suppliers. Once more, this had the impact of shortening supply chains and enhancing client administration.

Toward the end of 2010, BMW reported it would put 1.8bn rupees in its generation plant in Chennai, India, and expansion creation limit in India from 6,000 to 10,000 units. It likewise declared arrangements to expand creation in Kaliningrad,