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CORPORATE - Company: IBM - Research Paper Example

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Corporate Research Paper - Company: IBM Introduction: International Business Machines Corporation (IBM) is one of the leading industries providing services regarding Information Technology (IT), financial, public, industrial, distribution, communications, general business, lease and loan financing etc…
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CORPORATE - Company: IBM

Download file to see previous pages... Recently, the firm has started its operations in Ghana, Nigeria, Angola, Kenya, Senegal and Tanzania in Africa. It has investments in training units, data centers, offices and other amenities. IBM has now extended its branches further in Latin America, Asia and Eastern Europe by establishing research labs worldwide. Brazil is another country that IBM has expanded its business operations to, and the company believes its business there will be a huge success. IBM is actively participating in conducting “World Cup in 2014”and “the Olympic Games in 2016” by offering transportation, communication services etc. IBM Global is involved in activities such as various investments, financing assets, leverages with debt and managing the related risks. Its total income from sales as on March 2013 is 103.2 billions$. About Exchange (FX) Risk Management Policy in IBM: According to Cassio Calil, the Assistant Treasurer and Head of Global Operations, the IBM global forex risk management operation has been incorporated under one group worldwide. Therefore, no hedging activities are done outside the United States except sometimes in Dublin, Brazil and NDF [non-deliverable forward] market. Dublin acts as IBM’s money operations center for Europe along with offering cash to its subsidiaries worldwide. The euro, pounds sterling and yen are considered as the biggest forex exposure of IBM. IBM manages different exposures on interest rate, foreign exchange, credit, and equity. IBM hedges these exposures with forwards, average strike forwards and double average rate forwards. The equity price changes in accordance with market price fluctuations in equity market indices and in common stock of IBM. This change in turn is related to employee compensation obligations given under the head, SG&A expense in the consolidated statement of earnings. IBM uses forward contracts, futures, interest-rate and currency swaps, Cash Flow, Fair Value and Net Investment Hedges etc in accordance with the basic exposure mentioned above. The hedging transactions of IBM include debt risk management, long-term investments in foreign subsidiaries (net investment), anticipated royalties and cost transactions, subsidiary cash and foreign currency asset/liability management, and equity risk management. Hedging Transactions used by IBM: Debt risk management: IBM provides debt in worldwide financial market in order to account its financing lease and loan portfolio. This sometimes might lead to a hike in rate of interest or a disparity in currency with the assets. To solve these issues, IBM makes interest-rate swaps to convert particular fixed-rate debt into variable-rate (or “floating-rate”) debt (i.e., fair value hedges), and it also converts specific variable-rate debt into fixed-rate debt (i.e., cash flow hedges). The currency disparity takes place regarding foreign currency denominated debt, whereas the interest rate instability happens with forecasted debt of IBM. To correct these risks, the company uses cross-currency swaps and forward starting interest-rate swaps and enters them as cash flow hedge transactions. Long-term investments in foreign subsidiaries (net investment): Due to the fluctuation in foreign exchange rates in the functional currencies of the foreign subsidiaries when compared to USD, the foreign currency denominated debt head is accounted as a net investment hedge. This in turn affects the ...Download file to see next pagesRead More
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