[Author’s Name]
[Institution’s Name]
Essay on International Business
Where there was a settled political geography of state power and responsibilities, the remarkable growth of global finance has put enormous pressure on national economic, political and social institutions (Siegel, Marc Levine, Qureshi, Shim, 2002). Furthermore, the looming crisis facing many continental European social security systems has raised many doubts about the long-term viability of the BMW compared to its Anglo-American rivals. In this context, large German corporations have sought ways of sustaining their global competitiveness by, in part, restructuring their national and regional commitments.
BMW was exposed to fluctuations in foreign currency exchange rates, interest rates, and certain commodity and equity prices. BMW entered into a variety of foreign exchange, interest rate, and commodity forward contracts and options, to hedge these exposures. A risk management control system was utilized to monitor these (Mendels, 2002).
BMW also measured the sensitivity of the fair value of financial instruments. The analysis assumed instantaneous, parallel shifts in exchange rates, interest rate yield curves and commodity and equity prices. For options and instruments with non-linear returns, models appropriate to the instrument were utilized to determine the impact of market shifts. There were certain shortcomings inherent in the sensitivity analyzes presented, primarily due to the assumption that exchange rates changed in a parallel fashion and that interest rates changed instantaneously. In addition, the analyses were unable to reflect the complex market reactions that often arose from the market shifts modeled.
BMW was exposed to changes in interest rates due to its financing, investing, and cash management activities. BMW was vulnerable to interest rate risk associated with long-term debt and contracts to provide commercial and retail financing, retained mortgage servicing rights, and retained assets related to mortgage securitization. In addition, BMW was exposed to prepayment risk associated with its capitalized mortgage servicing rights and its retained assets............
