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Guide Questions Liability Management at General Motors

General Motors must carefully manage interest rate exposure given its significant debt load. It aims to ensure interest rate fluctuations do not overly impact operating cash flows or the company's ability to invest in new technologies. GM measures its exposure and reports it to investors, and considers interest rate derivatives to hedge against risks from upcoming debt issuances. As an investor, one would evaluate whether GM's liability management program sufficiently limits risks from interest rate changes without being too costly.

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983 views

Guide Questions Liability Management at General Motors

General Motors must carefully manage interest rate exposure given its significant debt load. It aims to ensure interest rate fluctuations do not overly impact operating cash flows or the company's ability to invest in new technologies. GM measures its exposure and reports it to investors, and considers interest rate derivatives to hedge against risks from upcoming debt issuances. As an investor, one would evaluate whether GM's liability management program sufficiently limits risks from interest rate changes without being too costly.

Uploaded by

Ztreat Nohanih
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Guide Questions

Liability Management at General Motors

1. How will changes in interest rates affect General Motors' business? Speculate on the various ways in
which changes in interest rates influence the demand for

2. How does managing interest rate exposure differ for a bank and for an industrial firm like GM?

3. What should be GM's over-arching policy toward managing interest rate exposure? For example, should
GM seek to ensure that changes in interest rates do not affect operating cash flow? The market value of
the firm's equity? GM's ability to invest in new technologies? Should it abandon all efforts to manage its
interest rate exposure? Be prepared to discuss GM's stated policies. How do you interpret these policies?

4. How has GM measured its exposure? How would you propose that GM measures its interest rate
exposure? How would you propose that GM reports the interest rate exposure of its business, and of its
liabilities?

5. What is a "rate view"? What role does it play in the liability management policy at GM? What role should
it play in the liability management program? Why?

6. Explain each of the interest rate derivatives that Bello is considering (listed in Exhibit 7.) How do they
work, and how would they affect the incremental interest rate exposure of the five-year fixed-rate note
that GM is about to issue? Assuming that each of the instruments is fairly priced, what should Bello
recommend? Why?

7. As a director or institutional investor in GM, how would you evaluate the liability management program
at GM? What might you suggest should be studied or changed, and why?

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