Page 75 - FINAL CFA II SLIDES JUNE 2019 DAY 5.2

READING 16: MULTINATIONAL OPERATIONS

MODULE 16.8: TAX, SALES GROWTH, FINANCIAL RESULTS

EXAMPLE: Walmart’s foreign exchange risk management practice
An excerpt from Walmart’s 2015 Annual Report:

We are exposed to fluctuations in foreign currency exchange rates as a result of our net investments and operations in countries other than the U.S. For
fiscal 2015, movements in currency exchange rates and the related impact on the translation of the balance sheets of the Company’s subsidiaries in
Canada, the United Kingdom, Japan, Mexico, and Chile were the primary cause of the $3.6 billion net loss in the currency translation and other category
of accumulated other comprehensive income (loss).

We hedge a portion of our foreign currency risk by entering into currency swaps and designating certain foreign-currency-denominated long-term debt
as net investment hedges.

We hold currency swaps to hedge the currency exchange component of our net investments and also to hedge the currency exchange rate fluctuation
exposure associated with the forecasted payments of principal and interest of non-U.S.-denominated debt. The aggregate fair value of these swaps was
in a liability position of $110 million at January 31, 2015, and in an asset position of $550 million at January 31, 2014. The change in the fair value of
these swaps was due to fluctuations in currency exchange rates, primarily the strengthening of the U.S. dollar relative to other currencies in the latter
half of fiscal 2015. A hypothetical 10% increase or decrease in the currency exchange rates underlying these swaps from the market rate at January 31,
2015, would have resulted in a loss or gain in the value of the swaps of $435 million. A hypothetical 10% change in interest rates underlying these
swaps from the market rates in effect at January 31, 2015, would have resulted in a loss or gain in value of the swaps of $20million.