Coca Cola Derivatives Essay

Coca Cola uses currency derivatives to conduct their business internationally. According to excerpts taken from the company’s KO “The purpose of our foreign currency hedging activities is to reduce the risk that our eventual U.S. dollar net cash inflows resulting from sales outside the United States will be adversely affected by changes in foreign currency exchange rates”. The currency derivative that is used by Coca Cola is forward exchange contracts. Coca Cola purchases currency options collars to hedge certain portions of forecasted cash flows denominated in foreign currencies as well as to offset the earnings impact relating to exchange rate fluctuations on certain monetary assets and liabilities. The company uses forward exchange contracts to hedge its net investment position in certain major currencies and international operations. The major operating currencies include the Brazilian real, Mexican peso, Australian dollar, South African rand, British pound, Euro and Japanese Yen.

The international operations of Coca Cola are subject to certain opportunities and risks, including currency fluctuations and governmental actions. As a result the company closely monitors their operations in each country and seeks to adopt appropriate strategies that are responsive to changing economic and political environments, as well as fluctuations in foreign currencies. The Company estimates the fair value of its foreign currency derivatives based on quoted market prices or pricing models using current market rates. A portion of the changes in fair value for these contracts have been designated as cash flow hedges. The company manages most of their foreign currency exposures on a consolidated basis, which allows them to net certain ex...

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...s to contribute vastly by not only operating their business in the country but they also take on tasks and sponsorships such as the Russian Winter Olympics, contributing to the countries health in terms of positioning their products and altering their product to suit the needs and health of the consumers by producing beverages with less caffeine, healthy teas made from fruits from the country among other things that can be seen in their investment into the China emerging market. Though Russia’s economic level depends less on Coca Cola there are other countries that benefit greatly through Coca Cola’s investments. The beverage industry is a major driver of economic growth in India. The company has provided employment for thousands of people in each of the countries especially in India and this contributes to the economy of the by lowering the rate of unemployment.