AAPL US dollar would favor AAPL whose

AAPL is a global organization based out of UnitedStates. 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 Internationalsales contribute a major percent in AAPL’s sales numbers, precisely sixty-fivepercent of its revenue comes from International sales. Because of such atremendous exposure to international operations, any fluctuation in currencyrate would have a substantial effect on AAPL’s earning.

AAPL has a strong global presence its suppliers arelocated all over the world and AAPL sells its products all over the world aswell. Now due to the nature of its business, AAPL is impacted both by a strongerUS dollar and also a weaker US dollar. Having a strong US dollar favors Applewho source their components from suppliers located outside of United States,but negatively impacts its sales figures which were contributed byforeign-currency. Similarly a weak US dollar would favor AAPL whose majorrevenue is generated internationally, however it would also negatively impact APPLas it sources raw materials from International markets and transact in foreigncurrency. US dollar is AAPL’s functional currency. The company’s 10K confirmsthat, AAPL enters into foreign currency derivatives like forward and optioncontracts with financial institutions to offset foreign exchange risks.

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In figure 4.3 we can see the FX hedges AAPLenters into to offset FX risk.Some of the major currencies that AAPL faces exchangerate 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 theU.S. dollar stand against the CNY, JPY, EUR, HKD, TWD and AUD. Other than EUR whichstands at $1 for € 0.

86 all other currencies pose minimum risk consideringtheir current exchange relative to US dollar. We also find that those AAPL’s subsidiaries whosefunctional currency is not US dollar, hedge a portion of estimated inventorypurchases which are not denominated in the subsidiaries’ functional currencies.AAPL typically hedges portions of its predicated foreign currency exposureassociated with revenue and inventory purchases, typically for up to 12 months.Furthermore from its 10K we learn that to insulate anyFX rate impacts of its investment in foreign operations AAPL utilizesderivative contract as well.

We see in figure4.4 gains and losses made by AAPL in futures contract.


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