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Presentation/PPT
27/08/2022
Below are for IBM and Amazon:
– The location(s) in the annual report where the company provides disclosures related to its management of foreign exchange risk.
– The types of hedging instruments the company uses and the types of hedges in which it engages.
– The manner in which the company discloses the fact that its foreign exchange hedges are effective in offsetting gains and losses on the underlying items being hedged.
Amazon.com is a global company that started as an online book seller and has grown to a massive international force for selling and shipping products. Their offerings have also grown outside of their typical space as an online retailer to media and even space travel.
The first place in the companies 2018 annual filing with the SEC that we see any mention of foreign currency is in the statement of cash flows where it is reported that in 2018 351 million dollars was lost in foreign currencies effect on cash and cash equivalents.
The first important disclosure that we see about foreign currency states that in stores and subsidiaries across the globe period reports and ongoing accounting is done in the local currency. These statements are only translated into US dollars at the end of the year with the consolidated financial statements. To make this possible many of the accounts are translated using the current exchange rate at the end of the period and revenues and expenses are translated using an average of the periods exchange rate to disclose statements in US dollars.
Throughout the financial statements it is not mentioned if specific financial instruments are used to hedge against foreign currency risk. They do state that excess cash is held in safe and AAA rated money market accounts or foreign government bonds. This may be how they are hedging against foreign currency risk by keeping money that is earned abroad in safe investments in the host country. This would protect against exchange risk by allowing investments to remain in the host currency until a favorable exchange rate can be found.
Required:
Discuss the differences noted in how IBM handles foreign exchange risk. Speculate as to why there are differences based on what has been researched about IBM and what was posted about Amazon.
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