Lufthansa

What went wrong?:

What went wrong? Lufthansa's board should have chosen DM1.6 b as a benchmark (DM3.2/$) Herr Ruhnau expected the dollar to fall; hence, he should have used option hedging

Concept check #1:

Concept check #1 If you believe there is a 80% probability that your house will be destroyed by floods, would you buy insurance or move to another location?

Concept check #2:

Concept check #2 You want your exams to be assessed based on: a. a pre-determined, objective exam key b. instructor's inspiration at the time of grading

Conclusions:

Conclusions Expect the exchange rate to move against you? Use forward hedging. Expect the exchange rate to move in your favor? Use option hedging. The benchmark has to be ex-ante not ex-post.

What went wrong?:

What went wrong? Lufthansa's board should have chosen DM1.6 b as a benchmark (DM3.2/$) Herr Ruhnau expected the dollar to fall; hence, he should have used option hedging

What went wrong?:

What went wrong? Lufthansa's board should have chosen DM1.6 b as a benchmark (DM3.2/$) Herr Ruhnau expected the dollar to fall; hence, he should have used option hedging

Concept check #1:

Concept check #1 If you believe there is a 80% probability that your house will be destroyed by floods, would you buy insurance or move to another location?

Concept check #2:

Concept check #2 You want your exams to be assessed based on: a. a pre-determined, objective exam key b. instructor's inspiration at the time of grading

Conclusions:

Conclusions Expect the exchange rate to move against you? Use forward hedging. Expect the exchange rate to move in your favor? Use option hedging. The benchmark has to be ex-ante not ex-post.

Concept check #1:

Concept check #1 If you believe there is a 80% probability that your house will be destroyed by floods, would you buy insurance or move to another location?

Concept check #2:

Concept check #2 You want your exams to be assessed based on: a. a pre-determined, objective exam key b. instructor's inspiration at the time of grading

Conclusions:

Conclusions Expect the exchange rate to move against you? Use forward hedging. Expect the exchange rate to move in your favor? Use option hedging. The benchmark has to be ex-ante not ex-post.