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To: TobagoJack who wrote (47493)	3/18/2004 8:59:55 PM
From: elmatador	Respond to of 74559

Get ready for BMW's made in Malaysia, Thailand Indonesia, China. Lex: Currency hedging Published: Mar 18 2004 20:54 \| Last Updated: Mar 18 2004 20:54 BMW believes the US dollar is undervalued and will rebound. It would do well to remember John Maynard Keynes's famous remark: in the long run we are all dead. Econometric modelling offers some support for the view that the dollar is below its long-run equilibrium rate. But the dollar needs to remain undervalued for some time if the US is to rein in its current account deficit and growing international indebtedness. Regardless of whether BMW's view is correct, its decision to stop hedging raises wider issues. Denominating debt in different currencies and shifting production overseas can help match assets and liabilities, reducing both the translation and transaction impact of currency fluctuations. For the remaining exposure, one view is that hedging is a speculative punt to be avoided. But leaving cash flows unhedged is as much of a punt. Imagine the furore if companies did not manage their debt. But the choice between fixed and floating rate structures is dependent on a speculative view of interest rates. BMW has not stopped taking a view on the dollar. It has an explicit opinion and, importantly for investors, it has offered some transparency on the extent of its existing hedges. However, with the availability of increasingly sophisticated hedging instruments perhaps it can be criticised for the bluntness of its approach. Numerous companies have cited dollar weakness for earnings shortfalls. The question should be why more are not actively managing their currency exposure. <font color=cyan> <font size=12>shifting production overseas can help match assets and liabilities