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International finance: IBM - Essay Example

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This essay has examined international finance in terms of International Business Machines (IBM). Within this context of investigation, the essay has considered Foreign Exchange Risk Management Policy, derivatives for funding and investing, and the extent of offshore and Euromarket funding and investing…
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International finance: IBM
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International finance: IBM

Download file to see previous pages... While international business has always driven large corporate entities, the world’s current economic environment has witnessed drastic increases in globalization. Today occurrences in the Asian markets directly affect equities on Wall Street. Organizations throughout the world tentatively look on at developments of the European Sovereign Debt Crisis. In this context of understanding, there is a prominent need for economists, investors, and financial analysts to consider a firm’s international financial involvements. IBM is one such prominent international organization with significant global reach and international trade ("Investor Relations"). The company was ranked the 31st larger company with global involvement, including hundreds of offices and subsidiaries worldwide ("Investor Relations"). The geographic breakdown of revenue is understood as in millions $40,184 from the Americans, $32,583 from Europe/Middle East/Africam, and $20,710 from the Asia Pacific ("IBM"). This essay examines the Foreign Exchange (FX) Risk Management Policy, derivatives for funding and investing, and the extent of offshore and Euromarket funding and investing of prominent technology company International Business Machines Corporation (IBM).
While IBM has prominent international investment practices, the organization remains headquartered in Armonk, New York. Still, there are substantial degrees of decentralization. In these regards, the corporation has offices and operating subsidiaries in nearly even major country worldwide, with hundreds of regional offices. An investigation of IBM reveals a firmly rooted company and business approach. The organization has general exposure risk. In these regards, they are exposed to exchange rate volatility on foreign currency denominated debt. The company is also exposed to market price changes in broad market indices, including employee compensation obligations. The currency exposure risk is managed through cross-currency swaps that convert fixed-rate foreign currency denominated debt to fixed-rate debt denominated in the functional currency of the borrowing entity. These exposures are mitigated by hedging through derivatives, including equity swaps and futures. Another important concern is the company’s Other Comprehensive Income equity account. In terms of the historical shifts in this account, one notes that there have been significant changes over the 2008-2010 period. In 2008 the equity contained in this account in 2008 was in millions, $3,414 with losses recorded at $15,245 ("IBM"). The company demonstrated a significant shift in 2009 with equity in this account $21,845 yet loses reduced to $994; a similar trend occurred in 2010 with $18,830 in equity and $1,712 in losses ("IBM"). As one might expect, IBM implements a substantial degree of hedging mechanisms. From an overarching context, the organization implements the derivatives and foreign exchange market as a means of hedging. The hedging involved for foreign cash assets are foreign exchange trading. In addition to this trading, the company implements foreign exchange forward contracts for this risk management purpose. This cash flow risk is managed in a three period. For the organization’s subsidiaries, cash flow forward and swap contrasts are managed on a two-year basis. The company faces exposure risks in terms of changes in market prices. These exposure risks are managed by derivatives, most prominently equity swaps and futures, which are linked to total return on certain broad market indices and common stock. Another exposure risk is the potential loss faced if a client fails to pay amounts due under contractual terms. This exposure risks are hedged using credit default swaps with a one year or less time frame. Derivatives As indicated above, the company prominently implements derivatives as a means of hedging against exposure risks. There are a number of further concerns related to IBM’ ...Download file to see next pagesRead More
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