Microsoft’s $15 Billion Hedge Against A Strong US Dollar

As traders we should know that the currency market and the futures market have 2 main roles: hedging and speculating. Hedgers are those who try to off load their risk. While speculators are those who take the risk and try to profit from it. A strong dollar has become a drag on many US based MNCs. One of them is the famous Microsoft Corp based at Seattle. As dollar gets stronger and stronger, it is cutting into the profit margin of Microsoft Corp as it tries to repatriate its profit into USD, it get’s less number of dollars as compared to the past when the dollar was not that strong.

To combat the strong dollar, Microsoft engaged in about $15 billion in currency hedging in the latest quarter, longtime Microsoft analyst Rick Sherlund said Friday.

“That’s the gross value to protect against currency moves,” said Nomura Securities’ managing director, who made his calculations based on Microsoft filings.

The strengthening dollar was a 3 percent drag on the top and bottom lines in the quarter ended in March. But the tech giant, after the market closed Thursday, reported earnings and revenue that beat expectations.

So as a currency trader, you know why hedging takes place and how it affects the market volatility.