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  • January 2013 (Revised January 2015)
  • Case
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FX Risk Hedging at EADS

By: W. Carl Kester, Vincent Dessain and Karol Misztal
  • Format:Print
  • | Language:English
  • | Pages:18
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Abstract

In 2008, EADS, the European aerospace group that owns Airbus, was faced with the decision of how best to hedge a large and growing mismatch between its dollar revenues and its euro manufacturing costs. Specifically, the company needed to decide if it would continue hedging primarily with forward contracts, but in much higher volumes and at increasingly unfavorable rates, or to break with past practice and begin using foreign exchange option contracts. The decision would have consequences for EADS' profitability, cash flow, and its ability to fund strategic investment programs crucial to its ability to remain competitive with Boeing. Students must address questions concerning the proper way to measure foreign exchange exposures, the objectives of a rational risk management policy and program for a company like EADS competing in a duopoly with Boeing, the differences between hedging with FX options versus FX futures, counterparty risk, and hedge accounting, among other considerations.

Keywords

Derivatives; Foreign Exchange; Options; Forward Contract; Aerospace; Europe; Risk Management; Futures and Commodity Futures; Aerospace Industry; Europe

Citation

Kester, W. Carl, Vincent Dessain, and Karol Misztal. "FX Risk Hedging at EADS." Harvard Business School Case 213-080, January 2013. (Revised January 2015.)
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About The Author

W. Carl Kester

Finance
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Related Work

    • March 2013
    • Faculty Research

    FX Risk Hedging at EADS

    By: W. Carl Kester
    • January 2013 (Revised January 2015)
    • Faculty Research

    FX Risk Hedging at EADS

    By: W. Carl Kester, Vincent Dessain and Karol Misztal
Related Work
  • FX Risk Hedging at EADS By: W. Carl Kester
  • FX Risk Hedging at EADS By: W. Carl Kester, Vincent Dessain and Karol Misztal
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