The article is devoted to issues of US corporations’ measures taken under the conditions of changing exchange rates. International business is based on receiving revenues in the currency of countries in which different affiliates are situated. Thus, every corporation functioning in the multitude of markets has to take a set of measures to protect its revenues from shrinking in the process of currency exchange.
The first block of information concerns the losses Google Inc. suffered because of its being a multinational company and “drawing more than a half its revenue from outside the US” (McCormick). In the context of measures taken by Google hedging is considered in the context of the present article. Hedging is a measure directed at softening the impact of fluctuations of currency exchange rates, hence being an effective means of saving the company’s revenues from inflation and financial loss. The importance of hedging is recognized further on in the article:
U.S. corporations boosted foreign-exchange hedging this year as the dollar rallied and the global credit crisis led to increased currency swings (McCormick).
The statistical data supporting the positive impact of hedging for the companies is also provided. It includes survey results (JPMorgan’s quarterly hedging survey, dollar Index strengthening by October 2008 as compared to 2006, etc.):
The percentage of 2009 foreign income hedged by U.S. corporations rose to 55 percent in September, from 33 percent in June and 6.7 percent in April, according to a JPMorgan Chase & Co. survey of clients. The September share was the highest since the bank began the quarterly canvass in 2005 (McCormick).
Overlay programs are the second block of information important for the presently discussed topic. Their significance is discussed in the context of peculiarities of currency exchange for the companies that appear to lose much revenue on the exchange rates even despite the fact that the dollar is already much stronger in the world market than it used to be. For this reason, the assistance in currency exchange aimed at permitting the international companies to gain more revenues from their business activities has become a business in itself – many firms are known to undertake overlay and alpha programs nowadays:
Overlays generally focus on mitigating foreign-exchange risk embedded in an international portfolio of equities or bonds, while alpha programs also seek to add returns to a fund (McCormick).
The third meaningful block of the article titled “Dollar Strength” is focused on the success and popularity of overlay programs, their growing use by international firms that want to be secured from unexpected losses in their assets. The statistics, according to such source as Standard & Poor’s 500 Index, indicate that the hedging funds are gaining popularity and accumulating funds at the present moment, is projected to increase significantly in the nearest future because of the overall wish of business organizations to participate in a program of such type.
I agree with the author of the article on the fact that despite dollar gaining strength nowadays as compared to its dramatic fall half a year ago it is still necessary for the companies to generate efficient hedging programs to secure their assets from reducing under the conditions of constantly changing currency exchange rates. The article furthers my understanding of the tendencies taking place in the world at the contemporary period of time concerning the world currency exchange policies and adopted measures to lessen the impact of fluctuating rates. Hedging, overlay and alpha programs have been especially designed for the companies’ revenues’ protection, so one may see that they are functioning successfully, fulfilling their initial target, and steadily gain popularity.
References
McCormick, Liz Capo. Google Boosts Currency Hedges as Dollar Rallies From Record Low, 2008.