Economics For The Global Manager

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Apple Inc.

How Apple Prices its Revenues and Costs in Terms of Currency Denomination

Apple prices its revenues and costs in terms of currency denomination in a variety of ways, depending on the specific product, service, and market. In general, Apple prices its products and services in the local currency of the country where they are sold. This helps to make the products and services more affordable for local consumers.

For example, an iPhone purchased in the United States will be priced in US dollars, while an iPhone purchased in China will be priced in Chinese yuan. This is also true for Apple's services, such as the App Store and iCloud.

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    However, there are some exceptions to this rule. For example, Apple's online store allows customers to purchase products and services in a variety of currencies, regardless of their location. This is convenient for customers who travel frequently or who have family and friends in other countries. Apple also uses a variety of other factors to determine how it prices its products and services in terms of currency denomination. These factors include:

• The cost of doing business in a particular country: Apple's costs, such as manufacturing costs, marketing costs, and distribution costs, can vary depending on the country where it is operating. This can affect the prices of its products and services in that country.
• The competitive landscape: Apple also considers the prices of its competitors when setting its prices. If Apple's competitors are charging lower prices, Apple may need to adjust its prices accordingly.
• The strength of the local currency: The strength of the local currency relative to the US dollar can also affect Apple's pricing decisions. For example, if the US dollar is strong relative to the local currency, Apple may be able to charge higher prices in that country.

Contribution of Two Foreign Operations to the Parent Firm's Profits Apple has foreign operations in over 100 countries around the world. Two of its largest and most important foreign operations are in China and Europe. China is Apple's second-largest market, after the United States. In 2022, China accounted for approximately 25% of Apple's total revenue. Apple's Chinese operations are also very profitable, accounting for approximately 20% of Apple's total operating income in 2022. Europe is Apple's third-largest market, after the United States and China. In 2022, Europe accounted for approximately 22% of Apple's total revenue. Apple's European operations are also very profitable, accounting for approximately 15% of Apple's total operating income in 2022. Means of Hedging against Exchange Rate Risk Apple uses a variety of means to hedge against exchange rate risk. These means include:

• Forward contracts: A forward contract is an agreement to buy or sell a currency at a predetermined price on a future date. Apple can use forward contracts to lock in the exchange rate for its future sales and purchases.
• Currency options: A currency option gives the holder the right, but not the obligation, to buy or sell a currency at a predetermined price on a future date. Apple can use currency options to protect itself against adverse movements in exchange rates.
• Natural hedges: A natural hedge is a business transaction that offsets the risk of exposure to exchange rate fluctuations. For example, Apple can naturally hedge its exposure to the Chinese yuan by manufacturing products in China and selling them in other countries.

Effect of Increases or Decreases in the Dollar's Exchange Value on the Firm's Profitability An increase in the value of the US dollar would have a negative impact on Apple's profitability. This is because Apple's costs, such as manufacturing costs and distribution costs, are mostly incurred in US dollars. However, Apple's revenues are generated in a variety of currencies around the world. An increase in the value of the US dollar would make Apple's products and services more expensive for customers outside of the United States. This could lead to a decrease in sales and a decline in profitability. Conversely, a decrease in the value of the US dollar would have a positive impact on Apple's profitability. This is because Apple's products and services would become more affordable for customers outside of the United States. This could lead to an increase in sales and a rise in profitability. In general, Apple is relatively well-hedged against exchange rate risk. However, a significant increase or decrease in the value of the US dollar could have a material impact on the company's profitability.