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Technology Stocks : Apple Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Phillip C. Lee who wrote (8256)	2/6/1998 9:13:00 PM
From: Marc Newman	Read Replies (1) \| Respond to of 213177

Phil, I certainly hope someone more knowledgeable than I am about currencies and hedging steps in to either agree with you or debate you. We both agree that "Currency exchange surely affects company's revenue" and that "the current trend of decreasing U.S. dollar value will benefit to Apple." However, as I understood it these major companies have a tighter rein on the swings than your post indicates: <<The major purpose of hedging policy is to avoid further loss during the currency swings, so the company's financial manager sets up a bottom rate.>> I'll see if I have time to dig up anything. One of my "sources" worked at Prudential as a futures trader. Maybe I can e-mail him our posts and get his opinion. Btw, I decided to hold my trading position over the weekend to see if any news shakes out by Monday, or just to see if we can make a move back to the nineteens. Marc

To: Phillip C. Lee who wrote (8256)	2/6/1998 11:36:00 PM
From: Matt Webster	Read Replies (2) \| Respond to of 213177

Currency Trading... I think someone doesn't understand currency trading properly. Let me try to explain. A company does not lose money by hedging (except for the transaction cost). Let's say Apple is expecting to sell $1 million dollars worth of Macs to Japan. The yen at t=0 is 100:1. So Apple is expecting payment of 100 Million yen upon delivery. If it wants to hedge, Apple sells short 100 million yen in the futures pits. I believe the Yen trades on the IMM in Chicago. Now it is time t=1, the date of delivery. Here are the outcomes: 1: Yen = 100. Japanese guy delivers Apple 100 million yen, Apple delivers computers. Apple delivers 100 million yen to contract holder. The contract is satisfied. No change. 2: $1 = 80. The yen has appreciated (is worth more in dollar terms). Apple buys an offsetting contract on the exchange. The difference in 20 yen is in question. Apple makes a loss in the foreign exchange transaction. BUT the 100 million yen the Japanese guy delivers are worth more dollars. The two net to ZERO, 0, no change. 3: $1 = 120. The yen has depreciated (is worth less in dollar terms). Apple buys the offsetting contract on the exchange. The difference in 20 yen is a LOSS in dollar terms. Apple makes a profit on the foreign exchange contract. BUT the 100 million yen Apple received in payment are worth fewer dollars. The foreign exchange transaction yields a profit exactly equal to the loss in the commercial transaction. Thus, when one hedges, one will neither make nor lose money. Foreign exchange losses or gains occur when one fails to hedge and currencies move. In this case, if Apple is being paid in yen, it would like the yen to become more valuable. Indeed, the yen has become more valuable in the past month, moving from 130 to 125 yen to the dollar. Of course, many transactions are already settled in dollars. This is because the dollar is easiest to trade. To conclude, hedging currency should not affect the bottom line. Speculation or failure to hedge currency may. This sort of thing should be manageable by any competent Treasurer. Never believe "we blew the quarter 'cause of foreign exchange" more than once, if ever. Matt