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Financial Risk Management

Hedges were mindful of customer risk as well

By Staff Writer | Updated on October 01, 2003

When Microsoft’s Brazilian subsidiary was offering its price list in U.S. dollars, there was constantly a currency mismatch. During times when the Brazilian real was appreciating, customers would delay purchases. When the real depreciated, they over-ordered. The result: Erratic purchasing made revenue targets hard to hit.

After an unsuccessful attempt to convert the list to reals, Microsoft’s treasury began casting around for a new solution. Given the volatility of the real, pricing and currency risk management were analyzed to recognize the risk facing customers as well as Microsoft. Eventually, the treasury developed a system to hedge invoices in dollars with options and forward contracts.

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