Global Finance 369also have the high level of liquidity that is characteristic of other exchange-
traded derivatives. They also share the symmetrical character of the forward
contract. That is, gains and losses will be produced by the futures contract to
offset losses and gains, respectively, on hedged positions. Currency futures are
used rather infrequently in the hedging of foreign-currency exposures.
Summary of Currency Exposure and Hedging Positions
It is common for firms to first attempt to reduce currency exposure by using
their own operating activities and other internal actions. This point is made in
the following comments from the disclosures of JLG Industries: “The Com-
pany manages its exposure to these risks (interest and foreign-currency rates)
EXHIBIT 12.8 Hedging with option contracts.
Company Hedging TargetsAnalog Devices Inc. (1999) The Company may periodically enter into foreign currency
option contractsto offset certain probable anticipated, but
no firmly committed, foreign exchange transactions related
to the sale of product during the ensuing nine months.
Arch Chemicals Inc. (1999) The Company enters into for ward sales and purchases and
currency optionsto manage currency risk resulting from
purchase and sale commitments denominated in foreign
currencies (principally Euro, Canadian dollar, and Japanese
yen) relating to anticipated but not yet committed
purchases and sales expected to be denominated in those
currencies.
Olin Corporation (1999) The Company enters into for ward sales and purchase
contracts andcurrency optionsto manage currency risk
resulting from purchase and sale commitments
denominated in foreign currencies (principally Australian
dollar and Canadian dollar) and relating to particular
anticipated but not yet committed purchases and sales
expected to be denominated in those currencies.
Polaroid Corporation (1999) The Company has limited f lexibility to increase prices in
local currency to offset the adverse impact of foreign
exchange. As a result, the Company primarily purchases
U.S. dollar call/foreign currency put options which allows
it to protect a portion of its expected foreign currency
denominated revenues from adverse currency exchange
movement.
Quaker Oats Company (1999) The Company uses foreign currency optionsand forward
contracts to manage the impact of foreign currency
f luctuations recognized in the Company’s operating results.
York International Corporation To reduce this risk, the Company hedges its foreign
(1999) currency transaction exposure with for ward contracts and
purchased options.
SOURCES: Companies’ annual reports. The year following each company name designates the annual re-
port from which each example is drawn.