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ERIC Number: EJ1153471
Record Type: Journal
Publication Date: 2017
Pages: 12
Abstractor: As Provided
ISSN: ISSN-0022-0485
Teaching Exchange Rate Risk Using London's Gherkin Building: How Investors Were in (and out of) a Pickle
Jones, Adam T.; Sackley, William H.; Watson, Ethan D.
Journal of Economic Education, v48 n4 p276-287 2017
In this teaching note, the authors use an iconic London building, the Gherkin, as a motivation to understand exchange rates, cross exchange rates, and unhedged exchange rate risk. The famous tower was constructed in the early 2000s by Swiss Re, an insurance company, and then sold to investors as part of a sale-leaseback deal in early 2007. Unfortunately, the purchase was funded by a consortium of lenders using multiple currencies and leaving owners open to exchange rate risk. While partially hedging interest payments, the owners did not hedge the loans' principal and ultimately loan-to-value limits caused the building to fall into bankruptcy despite being fully leased. Hopefully the storyline piques student interest and promotes a better understanding of a topic that frequently challenges students.
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Publication Type: Journal Articles; Reports - Descriptive
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A
Identifiers - Location: United Kingdom (London)
Grant or Contract Numbers: N/A