This management report is prepared on the behalf of Janice Chang for thoroughly considering effects of Canadian Dollar fluctuations against Euro on company's fiscal year 2007. Analysis of these effects is necessary in order to repay loan with required profitability.
This report will carry recommendation for Westwood to hedge (with choices of Options, Forwards and Swaps) with Euro against Canadian Dollars or not.
Problem Statement
Our company West Wood Plastics Inc. is engaged in the manufacture and sale of a wide range of engineered, specialty, proprietary plastic products. The market for its products is located within Canada and Westwood does not have any exposure to the Export Market.
In order to widen its market base, it has entered into a license agreement with Germany based plastic resin manufacturer Schalle Industrie, Schalle which has given them exclusive Canadian manufacturing and distribution Rights of a revolutionary new plastic named Cryolac.
In exchange for the same the company had to pay an upfront sum plus a monthly licensing fee of € 2,50,000 and was required to purchase the raw material necessary to manufacture Cryolac from Schalle. In order to finance the upfront sum, Westwood had entered into a loan agreement with a Canadian Bank and simultaneously Schalle had agreed to accept a € 1 millon note bearing interest at 9.1 p.a. The note was payable in full 10 years from the date of agreement. As per the terms associated with loan from Canadian Bank, Westwood is required to generate a minimum of Cdn$ 9 million as before tax profits. As a result of these agreements, Westwood is now exposed to significant foreign exchange risk. Most of the company's revenue was denominated in Canadian dollar and at the same time a large portion of its expenses were to be paid in Euros.
The domestic and international events were creating unprecedented levels of volatility in currency markets and the company's major concern at that time was what would be the impact of depreciation in the Canadian dollar against the Euro on Projected income.
Westwood should maintain minimum profit of Can$ 9m for being in the loan agreement with Canadian bank and to repaying all loan instalments arised after deal with Schalle Industrie.
Data Analysis
The effect of five possible levels of Canadian Dollars on projected income is depicted in the table given below:
The Canadian Dollar has appreciated from CAD 1.56 to CAD 1.3536 in just two years. The expected increase in the interest rates by the Bank of Canada can boost demand for Canadian Dollar and thereby strengthen the Canadian Dollar even more against Euro. Just the speculation of interest rate hike had boosted the demand for Canadian Dollar to an all time high. Moreover even the Forward Rates prevailing in the market did not show signs of too much volatility. So based on above facts, the range considered is a realistic range and the Canadian Dollar is not expected to appreciate more than that.
The effect of implementing hedges with the following instruments is as under:
Currency Swap
A Cross-Currency Interest-Rate Swap can solve both of these problems at once. This swap allows the firm to switch its loan and interest repayments from one currency into another. It also allows the firm to switch the interest rate from floating to fixed or from fixed to floating. This means the firm can switch a floating-rate dollar loan into a fixed- or floating-rate French Franc loan. The firm will pay floating dollar rate on the original loan but through the Cross-Currency Interest Rate Swap it will receive floating LIBOR. The firm must pay a fixed (or floating) rate in French Francs of an equal amount. The product is particularly useful if you have a loan in dollars and you receive a lot of foreign currency from abroad. The firm can then use this foreign currency to repay its loan. The most simple currency swap structure is to exchange the principal only with the counterparty, at a rate agreed now, at some specified point in the future. Such an agreement performs a function equivalent to a forward contract or futures. The cost of finding a counterparty (either directly or through an intermediary), and drawing up an agreement with them, makes swaps more expensive than alternative derivatives (and thus rarely used) as a method to fix shorter term forward exchange rates. However for the longer term future, commonly up to 10 years, where spreads are wider for alternative derivatives, principal-only currency swaps are often used as a cost-effective way to fix forward rates. This type of currency swap is also known as an FX-swap.
Another currency swap structure is to combine the exchange of loan principal, as above, with an interest rate swap. In such a swap, interest cash flows are not netted before they are paid to the counterparty (as they would be in a vanilla interest rate swap) because they are denominated in different currencies. As each party effectively borrows on the other's behalf, this type of swap is also known as a back-to-back loan.
Last here, but certainly not least important, is to swap only interest payment cash flows on loans of the same size and term. Again, as this is a currency swap, the exchanged cash flows are in different denominations and so are not netted. An example of such a swap is the exchange of fixed-rate US Dollar interest payments for floating-rate interest payments in Euro. This type of swap is also known as a cross-currency interest rate swap, or cross-currency swap.
Currency Swap has two main uses:
To secure cheaper debt (by borrowing at the best available rate regardless of currency and then swapping for debt in desired currency using a back-to-back-loan). To hedge against (reduce exposure to) exchange rate fluctuations. Hedging Example For instance, a US-based company needing to borrow Swiss Francs, and a Swiss-based company needing to borrow a similar present value in US Dollars, could both reduce their exposure to exchange rate fluctuations by arranging any one of the following:
If the companies have already borrowed in the currencies each needs the principal in, then exposure is reduced by swapping cash flows only, so that each company's finance cost is in that company's domestic currency.
Alternatively, the companies could borrow in their own domestic currencies (and may well each have comparative advantage when doing so), and then get the principal in the currency they desire with a principal-only swap.
Implied Volatility:
An essential element determining the level of option prices, volatility is a measure of the rate and magnitude of the change of prices (up or down) of the underlying. If volatility is high, the premium on the option will be relatively high, and vice versa. Once you have a measure of statistical volatility (SV) for any underlying, you can plug the value into a standard options pricing model and calculate the fair market value of an option. A model's fair market value, however, is often out of line with the actual market value for that same option. This is known as option mispricing Impact is detailed in the above analysis for the implied and other suitable hedging tools provided. In financial mathematics, the implied volatility of an option contract is the volatility implied by the market price of the option based on an option pricing model. In other words, it is the volatility that, when used in a particular pricing model, yields a theoretical value for the option equal to the current market price of that option. Non-option financial instruments that have embedded optionality, such as an interest rate cap, can also have an implied volatility. Implied volatility, a forward-looking measure, differs from historical volatility because the latter is calculated from known past returns of a security (Investopedia, 2011).
Criteria for decision
Alternate analysis
The shareholder theory suggests that the financial decisions made in a firm are focussed on value
Recommendation
Next Action Plan & Implementation
PART-2: General Motors
Executive Summary
This case shows us that apart from transaction, translation and economic exposure to currency risk, firms also have the very real strategic impact on their competitive position from competitive exposure. Apart from GM's exposure to the yen which is reflected in their financial statements, their competitive position vis-à-vis Japanese manufacturers is affected by a potentially declining yen. This is because a declining yen reduces the Japanese manufacturers' $ cost, enabling them to pass on some of the benefit to US customers and thus taking some of GM's market share. This will impact GM's top and bottom line. However, GM has a difficult decision regarding managing this risk.
GM can quite easily justify hedging its transaction exposure to yen, as well as its yen denominated assets and liabilities. However, taking measures to manage currency risks stemming from competitive exposure is tricky because of various reasons:
Difficulty in accurately measuring exposure, leading to high estimation cost.
Justifying any measures as non-speculative.
Conducting transactions that take GM away from its core business.
Attributing too much importance to short-term trend over long-term strategy.
At the same time, if it can see some quantifiable loss from the trend of yen depreciation, it will find it hard to justify doing nothing. In the analysis, we articulate why the yen devaluation matters to GM and try to estimate a range of potential loss in market value for the company. We also look at exposures arising out of GM's direct exposure to yen movements. We then try to suggest alternative techniques for the difficult problem of estimating GM's competitive exposure. Finally, we look at the ramifications of the various actions that GM can take to 'hedge' its competitive exposure to yen. As always, the eventual course of action will depend on the firm's risk appetite and a more detailed cost-benefit analysis. Due to the various simplifications in the estimates, we refrain from making a numerical conclusion. However, if GM views that competitive exposure is a serious enough long-term strategic issue, it will seriously need to consider establishing a division or subsidiary with a mandate to 'neutralize' this imbalance.
Competitive Exposure
GM's exposure to the Japanese yen arose because of competing against Japanese automakers who had large parts of their cost structure denominated in yen. As these direct competitors derived roughly 43% of their revenue from the US market, a depreciation of the Yen could allow for greater incentives and savings to be passed onto US customers.
GM can quite easily justify hedging its transaction exposure to yen, as well as its yen denominated assets and liabilities. However, taking measures to manage currency risks stemming from competitive exposure is tricky because of various reasons:
Difficulty in accurately measuring exposure, leading to high estimation cost.
Justifying any measures as non-speculative.
Conducting transactions that take GM away from its core business.
Attributing too much importance to short-term trend over long-term strategy.
At the same time, if it can see some quantifiable loss from the trend of yen depreciation, it will find it hard to justify doing nothing.
2.1 GM's Problems, Analysis and Recommendation
GM faced various problems, which are as follows:
GM's Problem 1: Why is GM worried about the level of the yen?
Part of GM's concern about the yen is their own transaction exposure to the yen. However, more importantly, their competitive advantage could depend upon yen movements.
Japanese automakers are GM's major competitors in the US market.
Yen is currently depreciating. Japanese competitor's cost structure depends heavily (20-40%) on this FX rate. As a consequence, their costs decrease, their gross margins increase and they therefore able to reduce prices thus gaining market share in the US in competition with GM.
Through this chain of events, yen fluctuations impact GM's financials as well as its competitors.
Problem 2: How big is GM's competitive exposure based on Feldstein's assumptions?
Using the following approach, we estimate that GM's market value (based on discounting impact on EBIT by 20% to perpetuity) could range between $385 and $2300 million. This is a significant impact, needless to say.
Problem 3: Does the step-2 analysis cover all of GM's yen exposure? If not, how to estimate GM's overall yen exposure?
The Previous analysis takes into consideration the effect of Yen future depreciation that will result in losses of GM's competitive advantage. In order to cover all of GM's Yen exposure we should account for the additional forms of Yen exposure:
A net receivables position of $900M from GM's activity in Japan. This amount is subject to a transaction risk and any depreciation of 1% of the Yen is translated into 1%*900M=$9M loss. We assume that the translation risk (i.e. Balance Sheet) is negligible.
An investment exposure from GM's Japanese affiliates of (20%*1500+49%*1020+20%*90) = $817.8M, for which every Yen depreciation of 1% translates into 1%*817.8 = %8.2M loss, holding the equity Yen value of those investments constant.
A financing exposure through a Yen denominated $500M debt, issued in Japan, for which each Yen depreciation of 1% translates into a 1%*500M = $5M gain (at maturity).
The total net exposure of these three factors is therefore:
(900+817.8-500)*20% = 1217.8M*20% =$243.56 (under the assumption of 20% Yen depreciation).
Problem 4: Any alternative way to help Feldstein estimate GM's yen exposure?
Aside from Feldstein's technique, there are at least two other techniques Feldstein could use to estimate GM's yen exposure:
GM could perform the same analysis as above but for the major Japanese players: Toyota, Honda, and Nissan. By calculating the increase in profits (or loss) and change in market share for these three companies (adjusted for market growth), GM can estimate the sensitivity of its profits to depreciation (or appreciation) of the Yen.
GM can examine the sensitivity of its stock return to fluctuations in the Yen-US Dollar exchange rate (and adjusting for market returns), assuming that market efficiency will account for Dollar-Yen fluctuations.
Problem 5: How GM should manage its competitive exposure?
There are three broad approaches that GM can take in this regard:
Do nothing.
GM can ignore currency effects to the extent that they tend to have a lesser impact on stock price in the long run. Also, it can argue that competitive exposure does not directly reflect in their financials and therefore it is not part of their obligation to hedge for competitive exposure. In addition, taking 20% of Yen depreciation in perpetuity is an extreme assumption, having in mind that if Yen appreciates below 120 ¥/$, Japanese carmakers profitability is at stake. The benefits of this action are:
Cost savings in terms of managerial time and effort.
No reason to make simplifying assumptions and extrapolations that might be flawed.
The costs of this action are:
It goes against GM's expectations of a devaluing yen and their ability to hedge for this eventuality.
A devaluing yen affects GM's top and bottom lines as discussed earlier.
Align business models with Japanese
If GM fears that the currency trend could be sustained, it could also look to outsource some of its parts to other countries to the extent that they have weaker currencies. The ideal solution in this regard would be if they could outsource part of their production in Japan. However, this will increase their existing business risk profile because it would directly affect their business model.
Financial management
GM can undertake a variety of financial measures to strategically cover their perceived weakening competitive situation.
Invest more in Japanese automakers thus indirectly benefitting from yen depreciation. This would pose a difficulty if the exchange rate is still weak when GM wants to exit such investments.
Estimate their competitive exposure to yen by suitable methodology and use from a variety of hedging options (forwards, futures, money market, options) to manage this exposure. This will be probably viewed as speculative action because competitive exposure is not directly reflected in the balance sheet.
Issue more yen-denominated bonds - use their capital structure and transfer some of their dollar debt to yen. This could also be an interesting way to cover their exposure while at the same time aligning their business model with the Japanese to some extent. If they are correct, their cost of capital will decrease and this will have an offsetting effect on revenue losses. However, accurately determining the magnitude of this 'hedge' would be a potentially costly exercise.
Quantifying Competitive Exposure
Introduction
GM was the world's largest automaker and, since 1931, the worlds sales leader. In 2001, GM had unit sales of 8.5 million vehicles and a 15.1% worldwide market share. Founded in 1908, GM had manufacturing operations in more than 30 countries, and its vehicles were sold in approximately 200 countries. In 2000, it generated earnings of $4.4 billion on sales of $184.6 billion.
Table 1: GM Consolidated Income Statement
GM's global operations gave rise to significant currency risk and the treasury office at GM managed these risks. Among the key objectives of GM's foreign exchange was to reduce cash flow and earnings volatility and align FX management in a manner consistent with how GM operated its automotive business. These objectives were supported by the company's formal hedging policy.
The company however did not have a substantial competitive exposure hedging policy in place. Over the last year (2001 in case study) GM was trying to properly evaluate the risk to the substantial yen denominated assets it held. The value of the yen relative to the dollar was decreasing and GM had considerable exposure to this. In conjunction with this depreciation affecting the unit sales, GM has a significant stake in Suzuki, Isuzu and Fiji as well as a $500 million bond issue. All this accounts to considerable exposure which should be properly evaluated. GM's competitive exposure and how it is hedged/not hedged are discussed in this report as well as a sensitivity analysis reviewing the effect on GM's sales and market value should the yen depreciate any further.
Competitive Exposure
GM's exposure to the Japanese yen arose because of competing against Japanese automakers who had large parts of their cost structure denominated in yen. As these direct competitors derived roughly 43% of their revenue from the US market, a depreciation of the Yen could allow for greater incentives and savings to be passed onto US customers. This means that any depreciation in the yen lowered the relative cost structure of Japanese automakers in the US compared with GM. If some of GM's competitors achieved significantly reduced costs through currency depreciations which meant that the performance of GM's business faced currency risk. In addition to this many of the Japanese automakers were direct competitors with GM and targeting the same market i.e. family saloons, SUV's etc. If GM were to lose this market share to its competitors due to the yen depreciation, there is no guarantee that customers would return to GM in the future, so it is of huge importance that they hedge their competitive exposure. GM also had several yen denominated assets and liabilities in net receivables ($900m), a loan, a bond ($500m) and significant equity in Japanese automakers.
Quantifying the risks to Competitive Exposure
As discussed in section 2.0 depreciation of the yen would lead to lower cost for Japanese automakers because approximately 20% to 40% of the content was sourced from Japan and imported into the US. Furthermore the case study derives that approximately 15% to 45% of the cost savings on this content would be passed on directly to customers, thus ensuring a cheaper product in comparison to GM. Sales elasticity estimated by GM indicated that a 5% price decrease would increase sales units of Japanese automakers by approximately 10%. Any market loss was to be evenly distributed by the big three in Detroit Michigan USA.
To quantify these risks and potential damage to GM market share we wrote a spreadsheet which uses a range of different margins that Japanese automakers could pass onto customers and thus reduce GM's market share. This is dependent on the rate of depreciation of the Yen relative to the dollar. Copies of the spreadsheet are available if required. Results are shown in graphical format, with calculations following.
Competitive Exposure Estimation and Present Value of Loss:
GM's Decline in Market Value with Yen Depreciation
3.4 Consequence of Competitive Exposure.
From the above calculation and resultant graph, depending on the depreciation of the Yen relative to the dollar it can be seen that GM's decline in market value ranges from $242m to $4359m. From these figures it can be seen that GM cannot afford to ignore this competitive exposure at this point in time.
With 10% depreciation it ranges from $242m to $1453m.
With 20% depreciation it ranges from $484m to $2906m.
With 30% depreciation it ranges from $726m to $4359m.
Critique of GM Management Assumptions
Eric Feldstein made a number of assumptions in the case study. These were made in relation to; the percentage of Japanese content in each car, the percentage of savings that the Japanese automakers would pass onto the consumer, the extent of the devaluation of the yen, the consumer sales elasticity and the cross elasticity to GM sales. Feldstein estimated that the average Japanese car had between 20% and 40% Japanese content. We can see from the excel output that the greater the percentage of Japanese content the greater the effect on GM .If Japanese cars actually contained more that 40% Japanese content GM's loss of profit and market value would be greater than estimated in the excel spreadsheet.
It is estimated in the case that the Japanese automakers pass on 15% to 45% of the cost savings to consumers. The more of the savings the Japanese automakers pass onto consumers the more GM will suffer. While Japanese automakers have given away relatively little in incentives compared with the rest of the industry in the past, we feel it is possible that they may pass on 100% of the savings to consumers in order to increase their market share.
It is likely that some of the consumers who will switch to Japanese cars due to the drop in price will prefer the Japanese cars to GM's cars and will continue to buy Japanese cars even if their price rises in the future. If the Japanese automakers did decide to pass on 100% of the cost savings to consumers, this could result in GM's market value declining by up to $6.45 billion.
The consumer sales elasticity is assumed to be equal to 2 in the case study. We feel that this is a reasonable assumption as GM cars are an elastic good with plenty of close substitutes. Feldstein also assumes that the market share losses would be shared equally among and entirely by the Big Three in Detroit.
We feel that this assumption is a simplification and is likely to be quite inaccurate. Surely other car manufacturers selling in the U.S. market would have their market share reduced by the discounts the Japanese automakers will offer. Also it is unlikely that each of the Big Three will take an equal hit as while they all produce a similar range of vehicles, the Japanese vehicles will be closer substitutes for some vehicles over others. Feldstein assumes that 20% yen devaluation would capture an upper bound of the likely exposure.
We feel that while it is unlikely the yen will depreciate to early eighties levels, it is possible that it will depreciate more than 20% under certain circumstances. In the excel spreadsheet we have looked at the possibility of the yen depreciating by 10%, 30% and 40% as well as the 20% that Feldstein suggests. If we take the average scenario we can see that a 10% depreciation in the yen results in GM's market value declining by $726.5 million, while a 40% depreciation results in GM's market value declining by $2.9 billion. We can see from the spreadsheet that GM's competitive exposure is highly dependent and sensitive to changes in any of the assumptions.
4.1 Additional Assumptions
Other assumption that should also be considered by GM includes;
Brand Loyalty - American citizens who are very patriotic may decide to remain customers of GM rather than switch allegiance to a foreign company. Americans could decide to support their own economy and motor industry for a little bit extra in price.
Sales decrease in Japan - GM will face reducing sales in Japan because assuming that some of the content for these cars is imported into Japan at a more expensive rate due to the depreciating Yen.
Japanese Govt Influence - Japan is an export orientated country and the government is purposely weakening the yen to ensure that exports remain cheap.
3.6 GMs Total Yen Exposure
GM has commercial exposure of $900m. This is the amount of receivables over payables and thus increases their exposure to a depreciating Yen.
GM has $500m in Yen denominated bonds. This means that GMs exposure to 20% depreciation in the Yen is $500m as the amount outstanding is denominated in Yen.
The total short position of GM's investments in Japanese automakers is a short position of 0.818 billion.
This means that if the Yen depreciates by 20% the amount payable by GM will have decreased by 20% resulting in a saving of 196 million in dollar terms. This is one way in which GM has indirectly decreased its competitive exposure to a depreciation of the Yen. It is one form of a hedge.
Thus GMs net Yen exposure is (in billions):
3.7 GM's Current Management of Competitive Exposures
GM's current management policy for the expected depreciation in the Yen is to sit back and watch it pass by. They ignore currency effects to the extent that they do not have a significant effect on competitive exposure and share price. It can argue that from historical data, competitive exposure does not reflect in the financial results of the corporation. They can also argue that taking a 20% depreciation of the Yen into perpetuity is an extreme assumption to say the least. If the Yen were to move in the opposite direction then Japanese automakers would become unprofitable and any Yen denominated debt or short positions would become more costly to GM in dollar terms. Therefore any hedge that GM undertakes to minimize the effect of a depreciating Yen thus results in an increase in their exposure to an appreciation of the Yen. Seeing as there is little to be gained if the hedge loses money and the Yen appreciates. This is because Japanese car makers occupied such a small market share and thus there was little opportunity to gain significant market share. In fact, the GMs largest rivals in the US Ford and Chrysler would be in a more competitive position than GM if they did not hedge against a depreciating Yen and the Yen in turn appreciated.
That being said, it goes against GM's expectations of a devaluing Yen. Our examination of the historical share price and the dollar Yen exchange rate would signify that there is very little correlation between the two. In fact if anything there is a negative correlation. The GM share price fell in the early nineties and then made a turnaround in 1994 and began to rise significantly. It continued this trend until 2000 when GM closed at around $80. In this time from 1994 the Yen was by in large depreciating.
Obviously this does not signify that the more the Yen depreciates the more GMs share price increases. The correlation between the two was mostly random. All it signified is that in the past, fluctuations in the Yen did not have a significant effect on GMs share price. There were far more significant events in that period of time that had an influence on the share price such as The Gulf War and rising oil prices. These distorted the effect of the Yen fluctuations.
However things have changed in recent times. With the introduction of Toyota manufacturing facilities into Kentucky and Nissan into Ohio, it makes the risk of the Yen depreciating far more significant. These Japanese car makers are in a far better position to take advantage of their greater margins. After all we all know that the majority of people in the US believe that they should only buy an American built car and this goes towards them achieving this.
3.8 Options available to GM
GM must start to seriously think about their competitive exposure to a depreciating Yen. They must however pay significant attention to the consequences of any form of a hedge that they make if the Yen appreciates. This would suggest that GM should invest in a form of a hedge that is highly liquid. Even though they have made estimations to some degree of certainty that the Yen will depreciate in the short term, they cannot predict its movements beyond this. A form of foreign direct investment that involved them building manufacturing plants in Japan and significant outlays would not be ideal.
Instead we agree that options realistically available to them include outsourcing materials and parts from Japan to take advantage of their lower costs and using financials such as options or short term bonds. These all leave GM the opportunity to leave their agreement when it is advantageous to do so. GM is in a good position to outsource materials and parts from Japan as it already has a position in Fuji, Isuzu and Suzuki. Any purchases from these companies would most likely be cheaper than they can produce them for in the US and improve the supplier's financial position and in turn GMs financial position. Options allow GM to take advantage of either movement. Seeing as there would be risks behind either movement in the Yen after they hedge, this would be an ideal financial hedge. GM could also issue a short term yen denominated bond. This would decrease their exposure to a depreciating Yen and would avoid them making any long term speculations about the Yen.
3.9 The Yen Mid 2000-Present
In hindsight we were able to take a look at the performance of the Yen since Eric Feldstein, treasurer and vice president of finance for General Motors turned his attention to the economic consequences of fluctuations in the Japanese Yen. This confirmed our worst fears, GM taking an estimation of a 20% depreciation of the Yen into perpetuity would be an extreme assumption. While the Yen did depreciate significantly, if not quite the 20% expected, it has never hit this low since. Our notion that GM would require a "liquid" hedge is warranted. While a short term bond issue (1-2 years) would have decreased the level of exposure and rightly so, a longer term bond issue would have cost GM money with an increased exposure to an appreciating Yen. This would have in turn diminished the market share due to worsening relative position to Ford and Chrysler. Options would have been a reasonable alternative but we feel the best way to get the best of both worlds is through importing some of the manufacturing parts from Japan. Preferably, these would have come from a one of their affiliated companies provided they already had the additional manufacturing capacity. In turn when the Yen appreciated they could terminate their contracts with Japanese suppliers.
Conclusion
In reflection we can see that while GM was correct in its assumption that the Yen was going to depreciate, it was unrealistic to take this into perpetuity. It would be advantageous for GM to hedge against the depreciation but it would have to be a hedge that was highly liquid and GM could terminate their position when they felt it would be advantageous to do so. We can see that if GM issued a 10 year Yen denominated bond, it would currently be costing 33% more than in 2001.
We can also see that this additional cost would in turn have a negative impact on their position relative to Ford for example (provided they hadn't made a similar hedge). If they could see that its competitors were making hedges against a depreciating Yen then the risk of losing market share by them making a similar hedge and the Yen appreciating would be significantly less. But there would be an opportunity cost foregone through a missed opportunity to gain market share through their competitors' loss on the hedge.
