Lufthansa Case Study. Synopsis. Lufthansa, purchased twenty 737 Boeing aircraft in January of 1985 for $500 million. The payment was due in January of 1986 upon delivery of the aircraft from the U.S. manufacturer.
PowerPoint Slideshow about 'Lufthansa Case Study' - Sophia
Download NowAn Image/Link below is provided (as is) to download presentation
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
T dollar was “high” at this point, and therefore the decision to purchase now seems to be a bit late.
Yet, given the trend in the movement of the DM/$ rate over the previous years, it appears (using the graphic available to Herr Heinz Ruhnau in January 1985, Exhibit 2), that postponing the purchase would only result in a higher dollar and therefore a higher expense.
The initial decision is made with a highly overvalued dollar but a trend line which was hard to argue with. What do you expect, and which hedging alternative would you pick?
With the 50/50 hedge position he cannot possibly win. One side’s gains will always offset the losses on the other.
Why did Ruhnau not change his position when it became clear that the dollar had indeed peaked and was on its way back down?
This may be the most legitimate criticism of Herr Ruhnau’s management: the failure to re-position the hedge when new information is incontrovertible. Although this would not recoup previous exchange rate losses, it would allow Lufthansa to enjoy any further drop in the value of the dollar (or suffer any increases if the value of the dollar turned once again).