Question

How would the company Apple find hedging important for protecting cash flows or profit margins?

How would the company Apple find hedging important for protecting cash flows or profit margins?

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Answer #1

Apple is a global technology company and its products like computers, mobile phones and tablets etc are sold and used all over the world. As a result, it gets paid in all the different currencies of the world, which they have to convert in USD. So, given that they have receivables in emerging market currencies also, which have the risk of depreciation, in order to protect their cash flows and profit margins, they would be required to hedge these exposures. They can do that by using options or futures wherein they would be buying USD at a fixed rate by giving the emerging market currency at a future point in time. Hence, they can protect themselves from fluctuations in exchange rates.

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