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. 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.
AAPL uses US dollar as its 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. Due to its strong global presence, we see that the enterprise is a also a receiver of currencies other than the U.S. dollar, so to help protect gross margins from fluctuations in foreign currency exchange rates, some of AAPL’s subsidiaries whose functional currency is the U.
S. dollar hedges portion of forecasted foreign currency revenue. We also find that those subsidiaries whose functional currency is not the U.S.
dollar and who sell in local currencies, hedge portion of forecasted inventory purchases which are not denominated in the subsidiaries’ functional currencies. AAPL typically hedges portions of its forecasted 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 enters into foreign currency forward and option contracts to offset the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. Figure 4.4 shows the AAPL’s gains and losses in futures contract.