AAPL is a global organization based out of United
States. Its primary geographical region of operations by sales includes: America
(North and South), Europe, China, Japan and Rest of Asia Pacific. In figure 4.1 we can see International
sales contribute a major percent in AAPL’s sales numbers, precisely sixty-five
percent of its revenue comes from International sales. Because of such a
tremendous exposure to international operations, any fluctuation in currency
rate would have a substantial effect on AAPL’s earning.
AAPL has a strong global presence its suppliers are
located all over the world and AAPL sells its products all over the world as
well. Now due to the nature of its business, AAPL is impacted both by a stronger
US dollar and also a weaker US dollar. Having a strong US dollar favors Apple
who source their components from suppliers located outside of United States,
but negatively impacts its sales figures which were contributed by
foreign-currency. Similarly a weak US dollar would favor AAPL whose major
revenue is generated internationally, however it would also negatively impact APPL
as it sources raw materials from International markets and transact in foreign
currency. US dollar is AAPL’s functional currency. The company’s 10K confirms
that, AAPL enters into foreign currency derivatives like forward and option
contracts with financial institutions to offset foreign exchange risks. In figure 4.3 we can see the FX hedges AAPL
enters into to offset FX risk.
Some of the major currencies that AAPL faces exchange
rate risk on are : Chinese Yuan (CNY), Japanese Yen (JPY), European Dollar
(EUR), Hong Kong Dollar (HKD), Taiwan Dollar (TWD) and Australian Dollar (AUD).
In figure 4.2, we can see how the
U.S. dollar stand against the CNY, JPY, EUR, HKD, TWD and AUD. Other than EUR which
stands at $1 for € 0.86 all other currencies pose minimum risk considering
their current exchange relative to US dollar.
We also find that those AAPL’s subsidiaries whose
functional currency is not US dollar, hedge a portion of estimated inventory
purchases which are not denominated in the subsidiaries’ functional currencies.
AAPL typically hedges portions of its predicated foreign currency exposure
associated with revenue and inventory purchases, typically for up to 12 months.
Furthermore from its 10K we learn that to insulate any
FX rate impacts of its investment in foreign operations AAPL utilizes
derivative contract as well. We see in figure
4.4 gains and losses made by AAPL in futures contract.