INTRODUCTION TO FINANCIAL
RISK MANAGEMENT
23-1 Overview of financial risk management
23-2 Forward contracts
23-3 Futures contracts
23-4 Options and swaps
23-5 Financial engineering
what companies do
GOOGLE’S EARNINGS BOOSTED BY HEDGING PROGRAM
When Google held its second quarter 2011
earnings call, most participants focused on the
company’s record quarterly net income of $9 billion,
a jump of 32% from the prior year. For a relatively
young company, Google generated a remarkable
54% of its revenues in overseas markets. With
Google doing such a large amount of business in
foreign currencies, Patrick Pichette, then Google’s
chief financial officer, had responsibility for
developing and managing the company’s currency
hedging program. Ideally, Google’s currency
hedges would help offset fluctuations in the value
of the US dollar against the other currencies in
which Google engages in transactions. In the
earnings call, Pichette reported that the company’s
foreign currency hedging transactions increased
by 29%, roughly in line with the growth in overseas
business volume. The company reported a small
net gain on its hedging program for the quarter,
but the main purpose of Google’s hedging was
not to increase the company’s bottom line, but
rather to insulate it from excessive volatility due to
currency movements.
Source: ‘Google’s CEO Discusses Q2 2011 Results – Earnings Call Transcript’,
SeekingAlpha.com, 14 July 2011: http://seekingalpha.com/article/279555-
googles-ceo-discusses-q2-2011-results-earnings-call-transcript.
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