Reread the Management Focus on Volkswagen, then answer the following questions:
a. Why do you think management at Volkswagen decided to hedge only 30 percent of the automaker's foreign currency exposure in 2003? What would have happened if it had hedged 70 percent of exposure?
b. Why do you think the value of the U.S. dollar declined against that of the euro in 2003?
c. Apart from hedging through the foreign exchange market, what else can Volkswagen do to reduce its exposure to future declines in the value of the U.S. dollar against the euro?