In preparing your solutions, make sure to adhere to the presentational guidelines detailed in the above Instructions. In particular, present any analytic spreadsheets as succinctly as possible: do not print out reams of paper with Excel output. Throughout, you are free to make additional assumptions as need be but remember that you have to carefully motivate and document them. If you feel that information is missing or a question ambiguous, please send me email.
It is easy to get carried away by case studies and write longwinded essays. Most questions are straightforward and do not require long answers or can be answered in tabular form or with simple calculations. If you find yourself writing long answers you probably are missing the point or have not carefully studied the case which contains all the necessary information for succinct, to-the-point answers. Just keep it short and spend more time on thinking through the questions and case rather than writing too much.
- The Setting: BMW and the Global Automotive Industry. Analyze BMW AG 100 and the economic environment in which they are operating. Pay particular attention to the company’s performance from the early 1990s to the 2010s, its growth strategy, and the global financial markets which affect the Group.
(a) How well has the company been doing? Propose a metric and assess the Group’s overall performance since it embarked on its ambitious globalization plans.
(b) What is BMW’s strategy? How has it expanded and grown? How successful has this growth strategy been and how is it affecting the current performance of its major divisions?
(c) The automotive industry has always be at the forefront of globalization and risk man- agement. Reconcile the stylized facts that shareholder returns in this industry do not seem to systematically vary with FX rates with the significant foreign-currency exposures which global car manufactures face.
In fact, FX risk does not seem to have a statistically significant impact on car makers’ stock-price performance. How can that be?
(d) The academic literature identifies several factors which might have contribute to the neutralization of foreign-exchange exposure in global automotive operations. What are these factors and what is their relative importance in reducing or eliminating the consequences of foreign-currency exposures?
(e) Taking into account the evolution of the USD/EUR exchange rate during the 2000s, would you consider a range of $1.15 to 1.17/EUR to be an appropriate equilibrium rate? How would you define such an equilibrium exchange rate?
Sample Solution