Jim,
The general rule of thumb of hedge strategy on currency exchange
should be as simple as: When U.S. dollar depreciates, Apple would
benefit from it; when otherwise, it will suffer.
The hedge strategy is just another face of insurance, which won't let
Apple gain or lose as much as currency movement. One should
distinguish currency movement from hedge strategy.
When Marc said: <<but Apple will get little to no benefit from
currency swings.>> He was talking about currency movement, which I
think will heavily impact Apple's revenue no matter how hedging method
was applied. If he talked about hedge has little impact on revenue
when currency is in a range of swing, then that would be more
appropriate.
If apple could hire Soros' team to provide hedge for them, then
probably hedge would significantly impact on total outcome.
Usually, Apple has about 0.8B from foreign currencies, not as big as
IBM's 10B+, hence, Apple's Treasurer won't be as diligent as IBM's
regarding hedging matter. An example is as follows:
There are about 13 weeks in a quarter. I assume the Treasurer will
closely watch currency movement but will probably only sell shart "x"
amount of foreign currency every two weeks (the length of period will
depend on the range of swing). This "x" amount of foreign currency
is an expected value, which he/she does know how much Apple will earn
in the coming two weeks. Based on this assumed scenario, we clearly
know that:
(1) The tresaurer will short sell "x" amount of foreign currency six
to seven times in any one quarter;
(2) As the foreign currency appreciates, the shorting amount will not
be changed due to currency swing, rather, it will always follow
the expected value the Treasure believe the sales amount in the
coming period;
(3) Thus, as the U.S. dollar depreicates, the return values will be
larger. It is illustrated as follows:
Date Exchange Rate "x" amount Expected value Real Income
'98 Janpnese/US Short Amount sales in next Guarranty
---- ------------- ------------- -------------- -----------
1/1 135yens/dollar 270M yens 270M yens 20M US$
1/15 130yens/dollar 270M yens 270M yens 20.77M US$
1/29 130yens/dollar 270M yens 270M yens 20.77M US$
...
From above expamle, we see as the US$ depreciates, the real $ returns
will be larger no matter how the hedge was applied. The role of
hedge companies use is to offset certain amount of loss when the
currency trend against the favor direction, same will apply when
otherwise.
So, yes, Apple's revenue will be impacted by currency's fluctuation.
Generally speaking, when US$ appreciates, Apple brings in less; while
it will take home more when US$ depreciates. Of course, there are
several parameters mentioned in the previous post, that will be main
variables in the hedge strategy.
Phil |
