Case Questions
Herr Ruhnau was accused of making the following four mistakes:
1. Purchasing the Boeing aircraft at the wrong time. The U.S. Dollar was at an all-time high at the time of the purchase in January 1985.
2. Choosing to hedge half the exposure when he expected the dollar to fall. If he had gone through with his instincts or expectations, he would have left the whole amount unhedged (which some critics have termed “whole hog”).
3. Choosing to use forward contracts as his hedging tool instead of option. The purchase of put options would have allowed Herr Ruhnau to prolecr himself against adverse exchange rate movements while preserving the risk, ability of exchanging DM for U.S. dollars spot if the market moved in his favor.
4. Purchasing Boeing aircraft at all. Germany, as well as the other major European Economic Community countries, has a vested interest in the joint venture Airbus. Airbus’s chief rival was Boeing in the manufacture of large long-distance civil aircraft.