Lecturer: Tô Thị Thuỳ Dương

Class: IB1504
Subject: IBF301- International Finance
Members:
1. SS150075- Ngô Vĩnh Khang
2. SS150062- Trần Hoàng Bảo Quyên
3. SS150153- Nguyễn Thuỳ Linh
4. SS150426- Tôn Nữ Bảo Trân
5. SS150536- Nguyễn Thị Phương Thảo
6. SS150254- Trần Phương Anh
 CONTENT
I. Introduction about Apple company
II. Corporate management
1. Management of Apple
2. Board of management
3. Agency Problem

III. Apple operating in Europe Market

1. Overview multinational operation
2. Net sales
3. Exchange rate fluctuations
4. Capital Budgeting in Europe Market
5. Conclusion

IV. Hedging
1. Overview
2. Types of risks and hedge

V. Conclusions
VI. Reference
I. Introduction about Apple company
The Apple company is the company designs, manufactures and markets mobile communication
and media devices, personal computers and portable digital music players, and sells a spread of
related software, services, accessories, networking solutions and third-party digital content and
applications. The Company’s products and services include iPhone®, iPad®, Mac®, iPod®, Apple
Watch®, Apple TV®, a portfolio of consumer and professional software applications, iOS, macOSTM,
watchOS® and tvOSTM operating systems, iCloud®, Apple Pay® and a range of accessory, service and
support offerings. Apple company sells and delivers digital content and applications through the
iTunes Store®, App Store®, Mac App Store, TV App Store, iBooks StoreTM and Apple Music®
(collectively “Internet Services”). The corporate sells its products worldwide through its retail stores,
online stores and direct business department, moreover as through third-party cellular network
carriers, wholesalers, retailers and value-added resellers. Additionally, the corporate sells a range of
third-party Apple compatible products, including application software and various accessories
through its retail and online stores. the corporate sells to consumers, small and mid-sized
businesses and education, enterprise and government customers. The Company’s fiscal year is the
52 or 53-week period that ends on the last Saturday of September.

II. Corporate management

1. Management of Apple
Apple was organized with concentrated structures and functions. From everything that has to do
with important decisions, they're all connected to all the executive directors in the company. The
highest management agency in the company is the board of directors that set the rules that Apple
complies. However, they do not participate in management jobs or in design. The director's been
elected from the board of directors. The role player is one of the highest accountants in the
administration every day.
2. Board of management
Apple has a unitary board of directors. It includes both executives and non-directors. Currently,
the company's charter provides for the election of eight directors, who are supposed to serve for
one year each, subject to re-election (Investor Apple, 2014). Apple has principles that guide the
process of appointing and selecting board members. To be eligible for an appointment as a board
member, a person must be highly qualified, have strong leadership skills, and have sufficient work
experience. The most influential boards are the Audit & Finance Committee and the Nominations &
Corporate Governance Committee. The Audit & Finance Committee is supposed to be an
independent committee fully compliant with the NASDAQ structure. The members of this
committee should be selected based on academic qualifications and educational background.
On the other hand, the Nominations & Corporate Governance Committee is responsible for
overseeing the appointment of board members. This is the main body that oversees succession
planning. The intervention of the Executive Director and key stakeholders dramatically affects the
functioning of these committees. For example, the board's decision to change their external auditor
from KPMG to Ernst and Young in 2009 was highly controversial. There is no consensus of the
majority of all directors (Reuters, 2009). A conflict between the CEO and one of the directors at
KPMG influenced the move.

3. Agency Problem
3.1. The first problem
During the start-up phase, the initial conditions in Apple meant that its founders were forced to
sell off a large portion of their ownership to investors and the broader stock market. As a result,
investors with more shares have more influence over a company's operations today. They have used
this power to significantly constrain Apple's executive management, setting policies on some issues,
most specifically cash-flow allocation.
In 2012, Apple shareholders engaged in a "revolt" against management, demanding that the
company pay part of its cash reserves to shareholders in the form of dividends or share buybacks. In
other words, investors saw that Apple was profitable, and they wanted some of that profit for
themselves in the form of cash payments. Apple management objected, saying they wanted to save
cash reserves for future expansion and growth. Shareholders' power grew, and over the next few
years, Apple paid out 72% of its operating cash flow.
 3.2. The second problem
The remuneration of CEO and non-executives
Relating to the work of the board of directors and other executive members, Apple had to
witness the prominent critics. Fortt (2013) said that Apple has a history of salary payment for
executive directors and non-executives by stocks and reward money. For example, Steve Jobs had
the right to choose to buy 10-million stocks of Apple. In addition, Apple had also bought him an
$88 million private airplane.
The director runs, and other directors do not get paid monthly Besides, they've been awarded
every year based on their achievements. The policy of Apple on the payroll of the CEO and the top
executive through the stock bonus has been criticized by the direction of the differential
distribution. It created a scenario that only several individuals, including the CEO and the board of
management controlled most of the company's shares. With these powers, they have the right to
influence the significant appointments in the company. In 2014, The Annual Board of Directors
passed a law on the award of company shares. This concept links executive remuneration with
their performance.
Comparisons between executive and non-executive pay rates reveal large disparities. The
board, and other top executives total about 50 people who earned 80% more than everyone else.
An analysis of what executives and non-CEOs received in 2011 clearly shows this inequality.
Shapiro (2012) confirmed that in 2011, Apple executives received $441 million in net
compensation, equal to the salary paid by 95,000 employees working at Apple's Foxconn factory,
Apple's main assembly plant in the world. While the CEO and other Apple executives receive
several million dollars in remuneration, (Shapiro, 2012). This is an injustice that needs to be
addressed. Apple's performance compared to its Board of Directors is not satisfactory. The
independence and integrity of board members should be a priority.

3.3. The third problem

Compensation for executives and non-executives
Regarding executive remuneration including the board of directors and other executive
members, Apple has also seen major criticism. Fortt (2013) writes that Apple has a history of
paying members through stock and bonuses. For example, Steve Jobs, he has the option to buy 10
million common shares of Apple, Apple bought him for $88 million. Under his leadership the
company's value increased from $2 billion to over $16 billion.
 The CEO and other members of the board of directors are paid on a monthly basis. In addition,
they are given shares based on their success each year. Apple's method of rewarding CEOs and
other senior executives with stock bonuses has been heavily criticized for causing inequities in the
distribution of shares. It creates a situation in which only a few people, like the CEO and board of
directors, own a majority share in a corporation. They have the ability to influence important
appointments within the corporation because of this power. The annual general meeting of
shareholders approved the idea of Controlled Shareholding Units in 2014, after years of
deliberation (Fortt, 2013). Executive salary is linked to their success in this idea.
When comparing executive pay rates, substantial discrepancies emerge. Over the same period,
the board of directors and other senior executives earn an average of 80% more than non-
executive employees, totalling around 150,000. (Shapiro, 2012). This gap is evident in an
examination of what CEOs and employees received in 2011. According to Shapiro (2012), Apple
executives collected $441 million in net remuneration in 2011, which is equal to the salary paid by
95,000 employees in Apple's Foxconn factory, the world's largest assembly plant. While the CEO
and other Apple executives are paid millions of dollars, a Foxconn assembly plant employee is paid
only $384 per year (Shapiro, 2012). This is an inequity that must be corrected. In comparison to its
Board of Directors, Apple's performance is unsatisfactory. Board members' independence and
honesty should be a top focus.

3.4. The fourth problem

Relationship with Other Shareholders
Apple Inc. is a privately held limited liability corporation (LLC) that is owned by its stockholders.
Shareholders have a say in how the firm is run, including who is elected to the board of directors.
The corporation must convene an annual general meeting of shareholders in which all
shareholders are invited to attend. The corporation is expected to address any shareholder
complaints and layout a plan for the coming year during these meetings (Investor Apple, 2014).
Such transparency and strong connections between management and other shareholders are
enhanced by such an open approach. The majority of Apple shares are held by shareholders
through mutual fund ownership schemes, with the remaining shares held by top executives and
directors. This design establishes a centralized atmosphere in which executives and senior
management share tasks to help the organization achieve its objectives. The company's
performance benefits both executive leadership and ordinary stockholders in the long run.
 The annual meeting is attended by all of the shareholders. All Apple shareholders have a vote
on who will serve on the board of directors. The nomination committee selects the members of
the Board of Directors. Apple shareholders demand salary transparency from management, which
has resulted in recent moves to close the pay gap between CEOs and non-executive personnel.
Apple shareholders' active participation in the company's activities has resulted in the company's
remarkable stock market performance over the last two decades.
The relationship between Apple Inc. and its stockholders. Apart from the issues and conflicts
emerging from the compensation options, there are no other notable conflicts between Apple
management and shareholders. One of the keys to excellent performance is a positive working
relationship with shareholders.

III. Apple operating in Europe Market

1. Overview multinational operation
1.1 Apple's revenue from 2012-2019:
 From 2012 to 2019, we can clearly see a steady growth in Apple's revenue. Typically in 2012-
2013, revenue grew by 9.2% due to the company's many improvements in products (Iphone 5S,
iPad mini 5th generation, icloud upgrade, Macbook pro or the launch of Apple TV). In 2013-2014,
revenue grew slightly by 6.9% due to the launch of the Apple Pay - electronic payment application
and many acquisitions of companies large and small brands. In 2014-2015, revenue grew up to
27.9% due to Apple officially selling the Apple Watch and Apple Pencil. In 2015-2016, sales fell
7.7% due to Apple's decision to stop producing phones with traditional headphone jacks or many
phones that were faulty during use. In 2016-2017, Apple officially launched iPhone X (the most
popular phone version) as a gratitude to customers to mark the 10-year development journey to
make revenue grow 6.3%. In 2017-2018, revenue continued to grow by 15.8% despite Apple's price
hikes on everything and a lot of user frustration with Apple. In 2018-2019, revenue decreased
slightly by 1.9% although Apple tried to improve, upgrade products, launch new products.

It can be seen that the iPhone market is inelastic, even if the price increases, the demand of
consumers remains unchanged, they still buy the newest iPhones no matter how expensive the
price is. Therefore, although the number of iPhones sold has decreased, Apple's revenue is mostly
generated by iPhones. As far as statistics go, iPhone generates the company's highest revenue,
accounting for more than half of its total revenue each year.
1.2. Segmentation of apple markets
 Apple provides a breakdown of revenue and operating income for the following geographic
segments: Americas, Europe, China, Japan, and the rest of Asia Pacific. While the US remains the
home market, accounting for the majority of sales and earnings, Asia is catching up quickly. In
quarter 3 2021, the China, Japan and Asia Pacific markets contributed 36% of operating income
and 33% of revenue. That makes Asia significantly more important than Europe to Apple for
growth and profitability. The Americas segment, which includes both North and South America,
grew 32.8% in Q3 2021 to $35.9 billion, representing about 44% of Apple's total revenue.
Operating income grew 62.0% to $12.9 billion, representing about 41% of operating income for
all segments. The Europe segment which includes Europe countries, as well as India, Middle East
and Africa saw revenue grow 33.7% in quarter 3 2021 to $18.9 billion, representing about 23% of
total revenue of the company. Operating income grew 60% to $7.1 billion, representing about
23% of total operating income for all segments. The China segment, which includes China, Hong
Kong, and Taiwan have revenue grow 58.2% in the quarter 3 of 2021 to $14.8 billion, accounting
for about 18% of Apple's total revenue. Operating income increased 84.6% to $6.3 billion,
representing about 20% of total operating income for all segments. Japan's revenue for this
segment grew 30.2% in the third quarter of 2021 to $6.5 billion, accounting for about 8% of
Apple's total revenue. Operating income grew 43.4% to $3.0 billion, representing about 10% of
total operating income for all segments. The rest of the Asia Pacific segment including Australia
and other Asian countries’ revenue in this segment grow 28.5% in the third quarter of 2021 to
$5.4 billion, representing about 7% of the total Apple's revenue. Operating income grew 54.0% to
$2.1 billion, representing about 7% of total operating income for all segments.
The Americas region accounted for the largest share of Apple’s revenue in terms of
geographical distribution. As of the third quarter of fiscal year 2021, the Americas held over 44
percent of the revenue, whereas Europe came in second with 23.3 percent. Apple’s revenue
tends to be the highest in the first quarters of every financial year (October to December), when
the holiday seasons take place.
2. Net sales
Accounting for 23.3% of Apple's total revenue (in 2021), Europe is the largest foreign market in
which Apple operates. Look at a chart of net sales from the European market, in the period 2012-
2019, revenue tends to increase continuously and strongly.
Only in 2016 and 2019, APPLE's revenue fell by nearly 1% year-over-year.
Overall, in 7 years of operation in this foreign market, Apple recorded a revenue growth of 70%,
reaching a peak of $62420 billion in 2018

Exhibit 1: Apple's net sales in Europe from 2011 to 2020 (Source: Statista, 2021)
 3. Exchange rate fluctuations
Exhibit 2: U.S. Dollar (USD) to euro (EUR) exchange rate from January 2012 to September 29,
2021 (Source: Statista, 2021)

Exchange rate fluctuations in year:

USD/EUR 2012 2013 2014 2015 2016 2017 2018 2019

(American term)

Highest 0.82 0.78 0.82 0.94 0.95 0.93 0.88 0.91

exchange rate (Jul) (Mar) (Dec) (Nov) (Dec) (Jan) (Oct+Nov) (Sep+Aug)

Lowest 0.74 0.72 0.72 0.89 0.87 0.83 0.81 0.87

exchange rate (Feb) (Dec) (April) (Jan) (Apr) (Dec) (Jan+Mar) (Jan)
Exchange rate fluctuations period:

In general, the Dollar/Euro exchange rate fluctuates continuously and strongly. The highest and
lowest exchange rates in the year average 0.1 difference. In the period 2012 - 2019 can be divided
into 4 notable periods:

● 2012 – 2014
During the period 2012-2014, the USD/EUR exchange rate was relatively low. The highest
exchange rate is 0.82 EUR for 1 dollar, the lowest to 0.72 euros/1dollar. Thereby, it can be seen
that the value of the euro is relatively higher when compared to the dollar.
→ This benefits Apple's business.
- Apple product's prices are cheaper for European buyers, thereby increasing competition in this
market.
- When converting total revenue from euros to dollars, at a low exchange rate, Apple will receive
more dollars. Thereby, increasing the value of the company.
For example, with the highest exchange rate 0.82 euros/dollar. With $36323 billion in revenue,
APPLE needs 29784 billion euros in revenue from this market. However, if the exchange rate is
0.72, APPLE only needs 26152 billion euros in revenue.

● 2015 -2016
Starting from June 2014, we saw a rapid and continuous increase in the exchange rate. This
growth lasted for 10 months, ending in March 2015 with a peak of 0.92 euros/dollar.
After the end of the period of rapid growth, the exchange rate fluctuated quite stable. Peaked
in December 2016 at 0.95 euros/dollar. Not too much difference with the lowest exchange rate
of 0.88 euros/dollar.
Especially, after this period, the exchange rate always maintains a high exchange rate, not
returning to the exchange rate in the period 2012-2014. The lowest was 0.81 in March 2018
(nearly equivalent to the highest exchange rate in the period 2012-2014)
Through fluctuations in exchange rates, we can see that the local currency dollar has increased
in value strongly against the euro. With an exchange rate of 0.95, the value of the two currencies
is almost the same.
→ This is harming Apple's business.
 - With the rate of such rapid growth in 10 months, the price of Apple goods will become
expensive for European buyers. Many customers are not able to adapt to the price
growth in a short time. As a result, reduced customer demand, reduced competitive
position in the European market.
- In some cases, because of maintaining a competitive position or for some other reason,
Apple may decide not to raise international prices to offset the strengthening of the US
dollar. As a result, the total profit from sales in Euro currencies when converted to US
dollar value decreased, affecting the value of the company.
- This can partly explain the decline in Apple's revenue in 2015 -2016 (From $50 billion to
$49 billion) despite being in a continuous uptrend.

● 2017-2018
After the rapid exchange rate growth in the period 2015-2016, it seems that the government
has policies to restrain this growth. As a result, in the period 2017-2018, the exchange rate
tended to gradually decrease, as low as 0.81 in January/2018 and March/2018. Demonstrating
the government’s efforts in stabilizing the exchange rate and ensuring the competitive position of
multinational enterprises in the international market
The decrease in the exchange rate is beneficial for Apple, bringing Apple back to the track to
compete with other technology brands in the European market. Looking at Apple's revenue table,
it can be seen that revenue has increased again after the decline in revenue in 2016. Especially in
2018, compatible with the bottoming exchange rate, revenue in dollar terms increased by nearly
10 billion dollars (54 billion dollars to 62 billion dollars)

● 2019
- From the end of 2018 - 2019, the exchange rate gradually increased to a stable level. The
highest exchange rate is 0.91, the lowest exchange rate is 0.87, and the average is 0.89,
difference 0.4.
- With the return of exchange rate growth, once again APPLE's revenue decreases with $60
billion, reduce $2 billion compared to 2018.
4. Capital Budgeting in Europe Market
Europe is the foreign market that accounts for the largest percentage of Apple's revenue, so
Apple regularly makes investments in this market. Require Apple to calculate the capital budget
to invest.
In the period 2012-2019, Apple's biggest investment project in this market was in 2015. It is
expected to establish 2 data centers to enhance online services in the European market. It is
planned to set up 2 data centers in the Republic of Ireland and Denmark.
In its report, Apple expected the investment capital budget worth 1.7 billion euros, equal to
$1.9 billion dollars. That means Apple is expected to use the lowest currency rate in 2015 of 0.89
euros/dollar.
However, in reality, these 2 data centers were officially completed in 2016, and put into use in
early 2017. Therefore, the exchange rate fluctuation may affect the initial cost of the project.

- In the best case, use the 2016 highest exchange rate of 0.95euro/dollar → cost $1.78 billion
dollars < $1.9 billion dollars → Benefit company
- In the worst case, use the lowest exchange rate 0.87 euro/dollar → 1.95 billion dollars > 1.9
billion dollars → Harm company.
 Therefore, exchange rate fluctuations can affect a company's initial capital budgeting. In some
cases, the NPV of a positive project can be zero or negative, causing losses to the company if the
finance department does not have an accurate forecast of exchange rate fluctuations, and does
not use hedging measures.

5. Conclusion
Through fluctuations in the USD/EUR exchange rate, we see that these fluctuations have a
direct impact on the net sales and capital budgeting of the company.
About net sales:
- As the exchange rate rises, increasing the value of the dollar against the euro → Apple's
revenue tends to decrease.
- As the exchange rate falls, the value of the dollar falls relative to the euro, → Apple's
revenue increases.
About capital budgeting
- When the exchange rate increases, the value of foreign currency depreciates against
the local currency, investment projects paid in foreign currency will be converted into
less local currency → Capital Budgeting surplus, beneficial to businesses.
- When the exchange rate decreases, the value of the foreign currency appreciates
against the local currency, investment projects paid in foreign currencies will be
converted into more local currencies → Capital Budgeting shortage, harmful to
businesses.
The high dependence of revenue and capital budget on exchange rate fluctuations in
multinational business requires APPLE to have policies to hedge against exchange rate
fluctuations to ensure company value.

IV. Hedging
1. Overview
The Company’s financial performance is subject to risks associated with changes in the value of
the U.S. dollar relative to local currencies.
The Company’s primary exposure to movements in foreign currency exchange rates relates to
non–U.S. dollar–denominated sales, cost of sales and operating expenses worldwide. Gross
margins on the Company’s products in foreign countries and on products that include
components obtained from foreign suppliers could be materially adversely affected by foreign
currency exchange rate fluctuations.
The weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar
value of the Company’s foreign currency–denominated sales and earnings, and generally leads
the Company to raise international pricing, potentially reducing demand for the Company’s
products. In some circumstances, for competitive or other reasons, the Company may decide not
to raise international pricing to offset the U.S. dollar’s strengthening, which would adversely
affect the U.S. dollar value of the gross margins the Company earns on foreign currency–
denominated sales.
Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally
beneficial to the Company’s foreign currency–denominated sales and earnings, could cause the
Company to reduce international pricing and incur losses on its foreign currency derivative
instruments, thereby limiting the benefit. Additionally, strengthening of foreign currencies may
increase the Company’s cost of product components denominated in those currencies, thus
adversely affecting gross margins.
The Company uses derivative instruments, such as foreign currency forward and option
contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use
of such hedging activities may not be effective to offset any, or more than a portion, of the
adverse financial effects of unfavourable movements in foreign exchange rates over the limited
time the hedges are in place.

2. Types of risks and hedge

2.1. Hedging
The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade
receivables and prepayments related to long-term supply agreements, and this risk is heightened
during periods when economic conditions worsen.
The Company distributes its products through third-party cellular network carriers, wholesalers,
retailers and resellers. The Company also sells its products directly to small and mid-sized
businesses and education, enterprise and government customers. A substantial majority of the
Company’s outstanding trade receivables are not covered by collateral, third-party bank support
or financing arrangements, or credit insurance. The Company’s exposure to credit and
collectability risk on its trade receivables is higher in certain international markets and its ability
to mitigate such risks may be limited. The Company also has unsecured vendor non-trade
receivables resulting from purchases of components by outsourcing partners and other vendors
that manufacture sub-assemblies or assemble final products for the Company. In addition, the
Company has made prepayments associated with long-term supply agreements to secure
supply of inventory components. As of September 28, 2019, a significant portion of the
Company’s trade receivables was concentrated within cellular network carriers, and its vendor
non-trade receivables and prepayments related to long-term supply agreements were
concentrated among a few individual vendors located primarily in Asia. While the Company has
procedures to monitor and limit exposure to credit risk on its trade and vendor non-trade
receivables, as well as long-term prepayments, there can be no assurance such procedures will
effectively limit its credit risk and avoid losses.
Risk management: The Company regularly reviews its foreign exchange forward and option
positions and swaps contracts, both on a stand-alone basis and in conjunction with its underlying
foreign currency and interest rate exposures. Given the effective horizons of the Company’s risk
management activities and the anticipatory nature of the exposures, there can be no assurance
these positions will offset more than a portion of the financial impact resulting from movements
in either foreign exchange or interest rates. Further, the recognition of the gains and losses
related to these instruments may not coincide with the timing of gains and losses related to the
underlying economic exposures and, therefore, may adversely affect the Company’s financial
condition and operating results.

2.2. Types of risks and hedge.

2.2.1. Risks
The multinational region using foreign currency accounts for the largest proportion of Apple's
revenue, which is Europe, then China (reason: Apple has a factory in China), Japan and Asian
countries.
 For receivables from suppliers, businesses, ... Apple accepts money from other companies in
foreign currencies. Meanwhile, Apple pays its debts in dollars. Apple is exposed to risks when
exchange rates change, including transaction exposure, economic exposure, and translation
exposure.
This is a chart of the US Dollar as a weight of trade from 2012 to 2016. This shows that the
dollar tends to appreciate against other currencies.

a) Transaction exposure
When Apple exports products to Europe, European countries will pay in Euros, Apple receives
foreign currency when iPhones are shipped abroad. Orders usually occur a period of time before
delivery. Therefore, upon receipt of funds, the amount may be lower than the amount on the
order date due to the appreciation of the US dollar. Apple may insist on accepting US dollars to
expose foreign companies to foreign exchange risk, but then Apple may lose business
competitiveness against other competitors willing to take foreign currency.
b) Economuc exposure
- Economic exposure is a type of foreign exchange risk that results from long-run
unanticipated changes in exchange rates affecting future cash flows through their effect
on competitive position, sales growth, pricing and cost structure.
- Economic exposure affects a company’s cash inflows and cash outflows broadly such
that the company’s ultimate valuation is affected. It affects the profitability of a
company’s business model and its strategic position.
According to the 2012 Form 10- K, Apple's sales are geographically diverse. Americas accounted
for 36.7% of net sales, Europe 23.2%, Japan 6.75, and Asia - Pacific 21.2%, the rest was retail. This
geographic diversification helps mitigate the economic risks Apple faces. The largest markets in
terms of risk are the United States and the European Union. The economic situation in the United
States is quite favourable at present. The situation in Europe is more difficult. Both the Eurozone
and the UK are either heading back into recession or directly towards it. When Apple imports raw
products and components from other countries, Apple will pay in dollars. As the dollar
appreciates, the company benefits from paying fewer dollars to European countries.
Margins on sales of the Company's products in foreign countries and on sales of products that
include components obtained from foreign suppliers can be affected by foreign currency
exchange rate fluctuations and by international trade regulations, including tariffs and
antidumping penalties.
The weakening of foreign currencies against the US dollar adversely affects the US dollar value
of the Company's foreign currency sales and earnings. A stronger US dollar makes goods in
Europe more expensive and often causes the Company to raise prices internationally, potentially
reducing demand for the Company's products. In some cases, for competitive or other reasons,
Apple may decide not to raise international prices to compensate for the strengthening of the US
dollar, which will adversely affect the value of the US dollar. US dollars of gross profit margin
earned by the Company when selling goods in foreign currencies.
 - Examples of multinationals Apple faces when the dollar strengthens: Just 5
months ago, a product selling for $1,000 would cost 745 euros in Europe. Today, the
same item costs 900 Euros. That's a 21% price increase in just 5 months (in 2015).

Europe net sales decreased during 2016 compared to 2015 driven primarily by the effect of
weakness in foreign currencies relative to the U.S. dollar and a decrease in unit sales of Mac,
largely offset by an increase in iPhone unit sales and Services.
The year-over-year increase in Europe net sales during 2015 was driven primarily by growth in
net sales and unit sales of iPhone, partially offset by the effect of weakness in foreign currencies
relative to the U.S. dollar and a decline in net sales and unit sales of iPad.
The growth in the Europe segment in 2014 was due to increased net sales of iPhone, Mac and
iTunes, Software and Services, as well as strength in European currencies relative to the U.S.
dollar, partially offset by a decline in net sales of both iPad and iPod. iPhone growth resulted
primarily from the successful introduction of iPhone 5s and 5c in the second half of calendar 2013
and the successful launch of iPhone 6 and 6 Plus in over 20 countries in Europe in September
2014. Mac growth was driven primarily by increased net sales and unit sales of MacBook Air,
MacBook Pro and Mac Pro.
At the beginning of 2021, the exchange rate of the US dollar to the euro is below 0.9, which
means that one US dollar will buy less than 90-euro cents by that time. This is down from the
2016 peak of 0.95 euros/dollar but is still well above the pre-European Eurozone Crisis, which
began in 2009 and is due to a number of European countries. having difficulty paying government
debt.
 c) Translation exposure
The Apple multinational will have subsidiaries in Europe, each of which will file financial
statements in that country's local currency and, for consolidation with Apple's financial
statements, the company's financial statements subsidiaries must convert all of their financial
statements into US dollars. This leads to the risk of profit or loss on the financial statements even
though the assets of the company themselves do not change. The reason is that the present
value of a company's assets fluctuates with foreign exchange rates.
However, we will only analyse in-depth how to avoid transaction risk and economic risk.

2.2. Hedging transaction exposure & economic exposure

a) Hedging against receivables in European currencies
● Forward market hedging
When the dollar appreciates, Apple will buy a contract to sell euros in exchange for a certain
amount of dollars.
For example, Apple will receive 100000 Euro after 3 months. When Apple will go to the bank
to buy a forward contract, then Apple can close the receivables in US dollars after 3 months and
cover any losses due to changes in foreign exchange rates during the period. three months. At
maturity, Apple will give 100000 Euros to the bank to receive the desired amount of dollars.
● Options Market Hedging
Apple will buy foreign currency put options to hedge the risk of receivables in foreign
currencies. This means that Apple will buy a foreign currency put at the strike price (E) but if the
spot rate outside the market is lower than Apple will exercise the option, if the spot rate is higher
than the strike price then Apple will not exercise the option, let the contract expire and go out to
sell at a higher price with the cost of the exercise fee.
b) Hedging against payables in USD currency
Because Apple will pay the currency in dollars, when the dollar appreciates, the company will
have to pay less dollars so no forward contract is needed.
● Options Market Hedge
If Apple decides to use currency options to ensure its pay out in dollars does not fall, the
company should buy the call option. If the strike price (E) is less than the spot rate, Apple will
exercise its option. Conversely, if the spot price is lower than the strike price, the company will
let the option expire and go out to buy it at a lower price and charge a fee.
In the example Apple built 2 data centers in the Republic of Ireland and Denmark. Apple will hire
workers and buy materials in Europe, so Apple will pay dollars upon completion of the project.
The project was expected to be completed in 2015 (0.89 euros/dollar) but in reality, it was
completed in 2016. At this time, the exchange rate fluctuation (fear of the euro appreciation) will
affect the payables for the two projects. To avoid this scenario, Apple can use the options
contract, buying the call option for $1.9 billion. If the future spot rate is greater than the strike
rate of 0.89Euro/dollar, then Apple will exercise the option and incur an additional fee. If the spot
rate in the future is less than the strike price, Apple will let the option expire and buy the dollar
amount in the spot market for an additional fee.

c) Hedging recurrent exposure with Swap Contracts

Swaps are a series of forward contracts. When Apple regularly has to have periodic
revenues or payables. Apple entered into a currency swap to avoid buying each forward contract
at a high cost. This means that periodically, the operation will automatically execute the Forward
contract, the cost will be cheaper, this is a long-term contract for many types of forwards.

d) Hedging economic exposure

Because, the company has a large portion of earnings generated overseas while a
disproportionate share of costs is incurred in dollars. Second, volatile cash flows can adversely
affect the firm’s ability to implement the strategic plan, especially investments in R&D that form
the basis for future growth. To succeed in a highly competitive industry, the company needs to
make a long-term commitment to a high level of research funding. But the cash flow uncertainty
caused by volatile exchange rates makes it difficult to justify a high level of research spending.
Management decided to hedge in order to reduce the potential effect of volatile exchange rates
on future cash flows.
In the face of changes in exchange rates, Apple opted for a combined strategy of transferring
costs to selling prices for half of the cost to the customer, and the other half to be borne by
Apple.
- Example: As the dollar appreciates, in 2019, Apple had a plan to depreciate some
iPhones that tied its retail value to its previous price in local currencies outside of the US
instead of a rising US dollar. However, in countries like China and Turkey, the local currency
has depreciated too much against the strong US dollar, which makes the phone significantly
more expensive than its predecessor a year later. before. Essentially, Apple asked consumers
 to bear the costs of a stronger dollar. Cook said Apple will adjust foreign prices in some
markets by resetting them to or near the price a year earlier in local currency. That means
Apple will absorb the cost of a stronger dollar.
Apple has also adopted a sourcing method where input costs are low from around the world,
cheap labor is used, etc. Choose to set up and maintain production facilities in many countries to
deal with the effects of exchange rate changes such as China, India, Thailand, the USA and many
others
Diversify the market for the company's products. Example: Apple's declining sales in China will
be offset by increased sales in other countries.
+ Apple also invests in research and development (R&D) that can enable the company to
maintain and strengthen its competitive position in the face of adverse exchange rate
movements. Successful R&D enables the company to do the following:
+ Cut costs and improve productivity
+ Introduce new and unique products for which competitors cannot provide close
substitutes

VI. Conclusions
Apple Corporation - the world's number 1 manufacturer and trader of technology products.
Apple is always at the top of the list of the most expensive brands in the world. The company's
products always occupy the largest market share in the market today. In order to achieve that
success, the board of directors and the people who run the company must always have clear,
independent and transparent governance plans.
As the nature of business becomes international, Apple is exposed to the risk of fluctuating
exchange rates. Changes in exchange rates may affect the settlement of contracts, cash flows,
and the firm valuation. Seeing the great damage if not managing those risks well, Apple always
has the analysis department, the best ways to exposure. That's one of the reasons why Apple has
become so big. According to Bloomberg calculations, since March 2020, the value of Apple's
stock has approximately doubled and became the first US company to hit the $2 trillion market
value mark.
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