The Bmw Group

The BMW Group

Introduction

Bayerische Motoren Werke GmbH came into being in 1917, having been founded in 1916 as

Bayerische Flugzeugwerke AG (BFW); it became Bayerische Motoren Werke Aktiengesellschaft

(BMW AG) in 1918. As of 2009, the BMW Group covered the BMW, MINI and Roll-Royce

brands, being present in the world markets with 24 production and assembly plants, 43 sales

subsidiaries and a research and development network. Activities are carried out through three

business segments: Automobiles, Financial Services and Motorcycles. Despite the financial

crisis, the Group achieved positive group earnings for the 2009 financial year, thanks to their

crisis management and innovative projects. More than 1.28 million customers purchased a BMW,

MINI or Rolls-Royce during 2009, and over 87,000 customers bought a BMW motorcycle. Of

the 2009 Group revenue, 77% was derived from outside Germany; specifically, rest of Europe

25%, North America 23%, Asia/Oceania 17%, United Kingdom 8%, and other markets 4% (1).

Risks of Currency Fluctuations

Multinational enterprises, such as BMW, are heavily affected by macroeconomic conditions.

International economic crisis and its impact - such as changes on international raw materials

markets and currency exchange rates - on financial, goods and services markets have significant

impact on revenues and earnings of MNEs. To eliminate such risks, financial investors and

businesses use hedging instruments. There are three basic ways to manage currency risks. The

first approach is not to hedge at all, assuming that currency fluctuations will wash out over a

period of time; the second approach is to hedge fully, which may reduce the volatility of the

portfolio. The third approach is to actively manage hedging, choosing when and how much to

hedge. In short, hedging can be described as an insurance policy that limits the impact of foreign

exchange (FX) risk.