Wednesday, July 7, 2010


On Friday, May 28, the group met with Mr Alain Girardeau-Montaut, Exchange Risk Manager of Dassault Aviation. Dassault is the maker of the Falcon Jet and is a world leader in global aviation. It is a privately held global company and still owned by its founding family. At the meeting we learned about their process of hedging currency risk through derivatives trades. Dassault utilizes swaps, futures, and forward contracts to hedge or mitigate the risk of adverse currency movements. They do not speculate on the foreign exchange market as a way to invest. Dassault also hedges currency risk by diversifying their operations in the U.S. and Europe. They have factories in the U.S. and in Europe and keep 60% of their costs in Euro and 40% in USD. This gives them more flexibility than if they had their entire operation in Europe using one currency. We discussed some of the different factors that drive exchange rate movements such as oil. As oil prices rise, the US dollar typically declines, and the Euro increases. The inverse is also the case. This is because high oil prices are generally bad for the US economy, therefore detracting investors from investing in US treasuries and potentially enticing them to invest in the Euro. The issue of credit or counterparty risk was also discussed. Dassault mitigates this risk by requiring all counterparties to post collateral and mark to market daily. Dassault believed at the time of our meeting that the Euro was an attractive level to buy, which 1.23 to the USD. The meeting was very finance specific but was interesting to me because I am concentrating in finance and had just taken the Investments class where we learned about derivatives.


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