Apple’s Use of Derivatives

Apple’s Use of Derivative
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Apple’s use of Derivatives
Apple uses financial derivatives to mitigate against risks that it may face due to fluctuations in foreign currency or interests rate in the company’s future cash flow, net investments, and a certain class of assets and liabilities.
First, Apple uses derivatives to protect its gross margin from the effects of fluctuation in exchange rates. Notably, the company’s gross margin may be affected by foreign currency revenue when taking into account revenue from foreign subsidiaries that denominate their inventory purchases in other currencies (Apple Inc., 2022). To manage the risk, Apple enters into either forward contracts or option contracts, among other instruments to mitigate such a risk and designate the contracts as cash flow hedges. A portion of the forecasted inventory purchases is hedged for one year.
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