Question

The opening case discusses the problems facing Apple due to a strengthened U.S. dollar. Because of economic performance that has been higher than other economies, the U.S. economy has encouraged more investment, which has contributed significantly to the appreciation of its currency value. Based on these monetary issues, the currency changes cost Apple nearly $5 billion in revenue. As a result, the company must adapt to these trends. to hedge against future increases in the value of the U.S. dollar. That stated, should the company hedge too much, Apple could be exposed to too much risk.

1-a) Although Apple's general business model appears strong, what risks have resulted due to currency fluctuations in the global exchange market?

1-b) What are the drivers behind the increased value of the U.S. dollar? Is it something that Apple can control? Explain your answer.

Answer 1

1.[a]Apple is a Multi National Company based in US having strong business model and day to day operations.It conducts its operation around the globe in many countries.But in present highly competitive global scenario,the operations of Apple are directly or indirectly influenced by a number internal or external factors in business environments.They might be in control or may be out control.The company is exposed to many big and small risks.As mentioned above that the currency fluctuations in global market exchange has caused revenue loses to Apple.This is because the appreciation in dollar has made the imported goods cheaper for Americans in comparison to the domestic produced goods and so they would tend to demand imported goods more and demand the products of Apple less as it would be costlier comparatively resulting fall in sales leading to revenue loses.This appreciation would hamper the domestic and international sales of Apple as the exports also become costlier as for foreign nations the Goods of Apple company would worth them more now in terms of their own currency making the produce costlier and hampering their puchasing power.Due to this the Apple might loose its edge and competitiveness in the international market.

[b]There are a number of factors that have resulted in the increase in the value of U.S. dollar,but mainly the value of the currency is determined by the free demand-supply mechanism in the currency market where the value of any currency depends upon the demand and supply of dollar in the currency market.As mentioned above,due to high economic growth of US ecconomy in comparison to other economies of the world,it has attracted foreign investments.Due to this the foreign and domestic investors would demand more dollar to invest,in the currency market.This would increase the demand of dollar and fall in its supply resulting in increase in value of US dollar.

Yes to some extent the Apple can control and influence this.It can do this by only influencing the sources of demand and supply of US dollar in the foreign currency market.It can resort to hedging,speculations in currency market in a controlled manner.It can influence all such activities which results in demand and supply of dollar such as sell and purchase of goods,financial assets and services in the international market,investments,borrowings,exchange of gifts etc.It can adapt itself in this volatile scenario by using this tool very cautiously.