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Investment Portfolio

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Purchasing the Boeing aircraft at the wrong time. The U.S. dollar was at an all-time high at the

time of the purchase, in January of 1985.

2. Choosing to hedge half the exposure when he expected the dollar to fall. If he had gone through

with his instincts or expectations, he would have left the whole amount unhedged (which some

critics have termed "whole hog").

It was February 14, 1986, and Herr Heinz Ruhnau, Chairman of Lufthansa (Germany) was summoned

to meet with Lufthansa's board. The board's task was to determine if Herr Ruhnau's term of office

should be terminated. Herr Ruhnau had already been summoned by Germany's transportation minister

to explain his supposed speculative management of Lufthansa's exposure in the purchase of Boeing


In January 1985 Lufthansa, under the chairmanship of Herr Heinz Ruhnau, purchased twenty

737 jets from Boeing (U.S.). The agreed upon price was $500,000,000, payable in U.S. dollars on

delivery of the aircraft in one year, in January 1986. The U.S. dollar had been rising steadily and rapidly

since 1980, and was approximately DM3.2/$ in January 1985. If the dollar were to continue to rise, the

cost of the jet aircraft to Lufthansa would rise substantially by the time payment was due.

Herr Ruhnau had his own view or expectations regarding the direction of the exchange rate. Like

many others at the time, he believed the dollar had risen about as far as it was going to go, and would

probably fall by the time January 1986 rolled around. But then again, it really wasn't his money to

gamble with. He compromised. He sold half the exposure ($250,000,000) at a rate of DM3.2/$, and

left the remaining half ($250,000,000) uncovered.



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