However, as mentioned in its annual report, Microsoft manages this risk by hedging its foreign exchange exposure and constantly monitoring it to maximize its overall effectiveness. The principal currencies hedged are euro, Japanese yen, British pound, and Canadian dollar. Similarly, interest rate risk affects fixed-income securities in Microsoft’s portfolio which are diversified to minimize credit risk. Generally, interest rate, or inflation, risk can have an adverse impact on its stock. When rates go up, its stock can lose value. Therefore, fundamental analysis helps in determining the health of the economy to check if it is due for a correction by controlling the monetary policy. Microsoft stock is prone to the country, or political, risk. Having operations in numerous countries, Microsoft has to have a high tolerance for an abrupt political change, or a terrorist activity, or even an armed conflict in affected countries. Such mishaps warrant immediate remedial measures like tightening of security or shutting down operations temporarily. These measures can dramatically increase operating costs.
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