Midterm Examinationmultinational Corporationmicrosoft.pdf

Company Introduction

History of the development of Microsoft Corporation

• April 4, 1975: Microsoft was founded by Bill Gates and Paul Allen under the name MicroSoft

• January 1979: Company moved to Bellevue, Washington

• 1980: Company operating system with Unix version, called Xenix

• November 1980: Received an agreement to supply the CP/M operating system used in personal computers from IBM

• August 1981: Microsoft retains ownership of MS-DOS

• 1983: Market expansion with the release of the Microsoft Mouse In that year, co-founder Paul Allen resigned due to health reasons

• August 1985: Release of Microsoft Windows, graphical expansion for MS-DOS

• March 13, 1986: The stock price increased sharply, helping the company's management to become billionaires and millionaires.

• April 2, 1987: Release of OS/2 version to original equipment manufacturers (OEMs)

• 1990: Introduced the Microsoft Office suite of office applications

• May 26, 1995: Expanding product line to computer network and World Wide Web

• January 13, 2000: Bill gates awarded the CEO position to Steve Ballmer

• January 2007: Released Microsoft Office 2007 and subsequent version Windows – Vista

• June 27, 2008: Bill Gates retires and holds the position of technical advisor of the company

• February 12, 2009: Opening a retail store under the Microsoft brand

• Year 2010: improved mobile operating system Windows Mobile

• October 2012: Release of Windows 8 operating system

• July 2012: Selling 50% stake in MSNBC.com

• March 29, 2013: Xbox One console launch

• February 4, 2014: Steve Ballmer stopped keeping the word CEO and replaced it with Satya Nadella On the same day John W Thompson took over as Chairman, replacing Bill Gates

• April 25, 2015: Microsoft acquires Nokia devices and services for $7.2 billion

• January 21, 2015: Announced the release of the Microsoft Surface Hub Interactive whiteboard

• March 1, 2016: Announced merger of PC and Xbox divisions

• February 20, 2019: Microsoft Corp provides network security service AccountGuard[CITATION Tha21 \l 1066 ]

Organizational structure

Microsoft was founded by Bill Gates and Paul Allen on April 4, 1975, when they converted the programming language of the first mainframe computer into a language that could be used on the first personal computers and succeeded beyond imagination The first year profit was $16000 but by the 5th year it jumped to $7.5 million and expanded the business globally, establishing relationships with all the top computer manufacturers in the world, earning to nearly $150 million in 1985 Microsoft then went public while maintaining a staggering profit of 25% on sales Today, Microsoft has more than 115,000 employees and is continuing to make the computer's legacy feature in new ways [CITATION Vie21 \l 1066 ]

However, few people know that Bill Gates is no longer the main leader of this famous multinational corporation The current chairman of Microsoft Corporation is Mr John W.Thompson and CEO is Satya Nadella Bill Gates' current position at Microsoft is the company's technical advisor.

Vision, mission

Vision: “to help people and businesses throughout the world realize their full potential.”

Mission: “to empower every person and every organization on the planet to achieve more.”

Microsoft’s mission is to enable people and businesses throughout the world to realize their full potential They work to achieve this mission by creating technology that transforms the way people work, play, and communicate They develop and market sofware, services, and hardware that deliver new opportunities, greater convenience, and enhanced value to people 's lives.

-The tenets central to accomplishing their mission include:

 Broad Customer Connection: Connecting with customers, understanding their needs and how they use technology, and providing value through information and support to help them realize their potential.

 A Global, Inclusive Approach: Thinking and acting globally, enabling a multicultural workforce that generates innovative decision-making for a diverse universe of customers and partners, innovating to lower the costs of technology, and showing leadership in supporting the communities in which them work and live.

 Excellence: In everything Microsoft does.

 Trustworthy Computing: Deepening customer trust through the quality of oun products and services, our responsiveness and accountability, and our predictability in everything we do.

Business areas

At Microsoft, they mission is to empower every person and every organization on the planet to achieve more Microsoft enables digital transformation for the era of an intelligent cloud and an intelligent edge Microsoft operates in 190 countries and is made up of 182.268 passionate employees worldwide.[ CITATION Mic211 \l 1066 ]

Microsoft is present in most countries and has branches in 190 countries and is classified into 6 regions:

Thanks to that, created jobs for many workers around the world Over 40 years of construction and development, this business has established a solid foundation for a sustainable existence. Specializing in developing, manufacturing, trading in software copyrights and supporting a wide range of computer-related products and services.

Business Software, Developer Tools, Home &Educational Software, Tablets, Search,Advertising,Servers, Windows Operating System, Windows Applications & Platforms,Smartphones, Cloud Computing, Quantum Computing, Future of Work,Productivity, Al,Artificial Intelligence, Machine Learning, Laptops, Mixed Reality, Virtual Reality,Gaming,Developers, and IT Professional[CITATION Placeholder3 \l 1066 ]

Global Report

Increased $25.1 billion or 18% driven by growth across each of segments Intelligent Cloud revenue increased driven by Azure Productivity and Business Processes revenue increased driven by Office 365 Commercial and LinkedIn More Personal Computing revenue increased driven by Gaming for fiscal year 2021

Thoughout four years, revenue has steady increased 152% since 2018, with $57.728 billion changed.

Increased $6.2 billion or 13% driven by growth in commercial cloud and Gaming, offset in part by a reduction in depreciation expense due to the change in estimated useful lives of server and network equipment for fiscal year 2021

Thoughout four years, cost of revenue has steady increased 136% since 2018, with $13.827 billion changed

Microsft has increased $18.9 billion or 20% driven for the fiscal year 2021 by growth across each of segments and the change in estimated useful lives of server and network equipment. Gross margin percentage increased with the change in estimated useful lives of server and network equipment

Excluding this impact, gross margin percentage decreased slightly driven by gross margin percentage reduction in More Personal Computing Commercial cloud gross margin percentage increased 4 points to 71% driven by gross margin percentage improvement in Azure and the change in estimated useful lives of server and network equipment, offset in part by sales mix shift to Azure

Microsoft start to have higher gross margin than the average since 2018 with steady-state growth by 160% from $72.007 billion to $115.856 billion

Cash from operations increased $16.1 billion to $76.7 billion for fiscal year 2021, mainly due to an increase in cash received from customers, offset in part by an increase in cash paid to suppliers and employees

Cash used in financing increased $2.5 billion to $48.5 billion for fiscal year 2021, mainly due to a $4.4 billion increase in common stock repurchases and a $1.4 billion increase in dividends paid, offset in part by a $1.8 billion decrease in repayments of debt and a $1.7 billion decrease in cash premium paid on debt exchange

Cash used in investing increased $15.4 billion to $27.6 billion for fiscal year 2021, mainly due to a $6.4 billion increase in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other assets, a $5.2 billion increase in additions to property and equipment, and a $4.1 billion decrease in cash from net investment purchases, sales, and maturities

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period

Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method Dilutive potential common shares include outstanding stock options and stock awards

Table 2 The components of basic and diluted EPS

From the statement above, we have concluded for this chart:

Current year net income and diluted EPS were positively impacted by the tax benefit related to the India Supreme Court decision on withholding taxes, which resulted in an increase to net income and diluted EPS of $620 million and $0.08, higher than the average EPS of Computer Software industry and about twice for fiscal year 2021

Thoughout three years, EPS has increased 3.01 since 2018, much higher than the average of Computer Software industry with the impressive change of 2021’s EPS, which is 8.12, much higher than 2020 and 2019.

2.6 ROE (Return on equity) & ROA (Return on asset)

ROE/ROA are increased 6.78% and 4.22% respectively by growth of net income, 38% higher than 2020 Both ROE and ROA are more than twice as the average ROE/ROA of Computer Software industry Respectively higher 2.26 and 2.10 times on average

The chart above depicts the distribution of return on assets for companies operating in the Information Technology sector in the United States Over 1,210 companies were considered in this analysis, and 572 had meaningful values The average return on assets of the companies is -0.9% with a standard deviation of 17.4%.

Microsoft Corporation's Return on Assets of 22.1% ranks in the 93.5% percentile for the sector.

The chart above depicts the distribution of return on common equity for companies operating in the Information Technology sector in the United States Over 1,210companies were considered in this analysis, and 563 had meaningful values The average return on common equity of the companies is -3.5% with a standard deviation of 31.7%.

Microsoft Corporation's Return on Common Equity of 49.1% ranks in the 95.5% percentile for the sector.

Vietnam Report

Entering the market since the Internet first appeared in Vietnam in 1997, up to now, after more than two decades, Microsoft has made a great contribution to changing people's lives and accompanying technology to cover all aspects side by side with social activities There are a lot of bright spots of Microsoft in Viet Nam:

 Accompanying promoting IT development in many socio-economic fields:

- VNPT: July 7, 2016 – Vietnam Posts and Telecommunications Group (VNPT) and Microsoft signed a strategic cooperation agreement to accelerate the process of consulting, providing and implementing key areas of information and communication technology Accompanying VNPT, this event marks another important step, reinforcing Microsoft's commitment to supporting the Government and organizations in Vietnam to strengthen IT capacity in many aspects, optimize deploying and using IT for organizations and businesses in Vietnam As the leading trusted IT consulting group for many Governments around the globe, Microsoft has outlined a strategy in line with Vietnam's IT development plan to 2020, and the key part is supporting assist Vietnam in consolidating and building an advanced IT foundation.

- Ministry of Finance (2016-2020): On November 25, 2016 at the headquarters of the Ministry of Finance, the Department of Informatics and Financial Statistics (THTK), the Ministry of Finance and Microsoft Corporation jointly held the Signing Ceremony of a Memorandum of Understanding on the Technology Cooperation Program information between the Department of Statistical Information and Communications and Microsoft Vietnam in the period 2016-2020, following the success of the period 2014-2016 Accordingly, in the next 5 years, the cooperation program between the Department of Accounts Receivable and Microsoft Vietnam will focus on on four main topics.

- Ministry of Natural Resources and Enviroment: In the 5 years from 2017, the cooperation program between the Department of Accounts and Finance and Microsoft Vietnam Company focuses on four main contents Specifically: Microsoft Vietnam will periodically update information about technology and IT trends with staff of the Finance sector in order to help the Ministry of Finance in formulating regulations on IT, developing IT human resources in the Finance sector main.

- Sign a cooperation agreement with University of Medicine and Pharmacy Hospital of Ho Chi Minh City Ho Chi Minh City develops IT infrastructure based on cloud computing in January 2016: To enhance IT application with Microsoft's comprehensive technology and solutions, contributing to promoting and increasing the deployment of examination, diagnosis and treatment services in a more optimal way at the University Hospital of Medicine and Pharmacy City Ho Chi Minh.

- Cooperation with the Ministry of Information & Communications: In March 2014, the Ministry of Information and Communications (TT & TT) officially signed a Memorandum of Understanding with Microsoft to build a long-term and close cooperation relationship, coordinate to realize common goals in four areas Focus areas include promoting IT infrastructure modernization, improving security and enhancing network security, focusing on developing cloud computing applications and developing IT human resources for Vietnam including: includes working knowledge of infrastructure, security, and development of software applications Also within the framework of the signing ceremony with the Ministry of Information and Communications, Microsoft and the Vietnam Computer Emergency Response Center (VNCERT) under the Ministry of Information and Communications.

- Signing a cooperation agreement with the Vietnam Information Security Association (VNISA): in order to strengthen the work of information security and safety in Vietnam, marking a new step in the long-term cooperation that the two sides are aiming for more concretely, effectively and practically in an effort to build a safe and healthy IT industry.

- Signed a cooperation agreement with Viettel Group in September 2014: to improve cloud-based

IT infrastructure and services for Vietnamese government agencies Under the agreement, Microsoft and Viettel Group will cooperate to provide infrastructure and services on the cloud computing platform for Vietnamese Government agencies and ministries throughout from Infrastructure as a Service ( IaaS), Platform as a Service (PaaS) to cloud service management – Software as a Service (SaaS).

- Joining a Memorandum of Understanding with the Department of Information and Communications of Ho Chi Minh City Ho Chi Minh City: to realize the Smart City model CityNext in August 2014 Accordingly, the two sides will work together to jointly implement key areas including: Information Technology Infrastructure (IT), IT infrastructure for Smart Cities; Information security; Cloud application development; Human resource training, IT personnel; Applications for e-government management in socio-economic fields; Promote the development of Information Technology and Electronics Industry in Ho Chi Minh City and raise awareness of compliance with Intellectual Property rights [ CITATION Mic17 \l 1066 ]

 Strengthening partner channel in Vietnam

- May 2016: FPT International Telecommunications Company (FTI, under FPT Telecom) was granted the Gold Partner Certificate by Microsoft for providing Cloud solutions and services in Vietnam.

- June 2015: Microsoft Vietnam and CMC Telecommunication Infrastructure Joint Stock Company signed a Memorandum of Understanding confirming the fact that CMC Telecom becomes a strategic partner to provide Microsoft's Level I cloud computing services in Vietnam.

- June 2013: Microsoft Vietnam and HPT Information Technology Services Joint Stock Company officially signed and announced a commitment to strongly support the development of software and IT services for businesses This agreement helps to open a new direction, bringing the most benefits to customers of both sides in particular and the entire domestic business sector in general In particular, this signing has helped HPT become Microsoft's only strategic partner in the field of optimal software and IT services for businesses in Vietnam (National System Integrators - NSI) Under the agreement, Microsoft will act as a senior advisor and also a trusted strategic technology partner of HPT in the development of software and services for enterprises.

- September 2013: Microsoft announced Petrosetco as a distributor of Microsoft's equipment, solutions and technology products in Vietnam market and officially became a distributor of Microsoft, distributing devices, Microsoft's comprehensive technology products and solutions in Vietnam, Laos and Cambodia markets.

- December 2014: Microsoft and retailer Mobile World officially signed a strategic partnership agreement in the global plan and orientation of 'Cloud First, Mobile First' technology This cooperation agreement aims to promote the delivery of high-quality genuine products to Vietnamese consumers It can be said that this Memorandum of Understanding is a breakthrough cooperation plan that the two sides aim to be more effective and practical in their efforts to bring genuine, copyrighted products, and provide the best experiences and the most competitive for consumers in the Vietnamese market [ CITATION Mic17 \l 1066 ]

 First Microsoft Press Day in Vietnam

In October 2013, representatives of reporters, journalists and news agencies from all over Vietnam gathered in Da Nang in an event called "Experience a big world" more: New Windows, New Wider World” The highlight of the event was the introduction of the new operating system Windows 8.1 and demonstrated Microsoft's commitment to continuing to realize the PC revolution, bringing the next generation of Windows, raising the bar for PC flexibility, and bringing innovation to life productivity for tablets, with convenience for the latest mobile devices, so users can work efficiently, flexibly entertain on personal devices At the conference, through concise presentations and sharp product demonstrations, journalists were also excited to experience the Windows ecosystem such as Windows Phone 8, Microsoft Office 2013 Especially, the new management systems Windows 8.1 is multiple forms of Sony’s partners, Asus, HP, Lenovo, Nokia,… [ CITATION Mic17 \l 1066 ]

 Signing a Cooperation Agreement with the Ministry of Education and Training: In

November 2013, the Ministry of Education and Training (MoET) and Microsoft signed an Education Cooperation agreement to improve information technology application capacity into teaching, learning and educational management for teachers and leaders in the period of 2013 – 2018 The agreement has been implemented to help staff in the Education and Training industry, teachers, students and Students can apply IT from basic to advanced levels in the process of management, teaching and learning, towards the goal of successfully building and developing a comprehensive and modern education topic, to carry out a series of Education Cooperation activities in Vietnam for the period from 2013 to 2018. [ CITATION Mic17 \l 1066 ]

 Donating Office 365 to NGOs in Vietnam: In December 2013, Microsoft Vietnam launched the

Corporate Governance (Policy)

Board of Director

Microsoft company has an independent Chairman of the Board who is appointed annually by the independent members of the Board The roles of Chairman and CEO are separated since 2000.

- Independent Chairman facilitates our Board’s independent oversight of management, promotes communication between management and Board, engages with shareholders, and leads our Board’s consideration of key governance matters The CEO has primary responsibility for the operational leadership and strategic direction of the corporate,

- Board believes its leadership structure is acceptable because it effectively allocates authority, responsibility, and oversight between management and therefore the independent members of the Board

4.1.1 The Board of Directors provides operational and strategic oversight

The Board oversees business affairs and integrity, works with management to determine theCompany’s mission and long-term strategy, oversees risk management, performs the annual

Chief Executive Officer (“CEO”) evaluation, oversees CEO succession planning, and oversees internal control over financial reporting and external audit In addition, Board committees focus on the following

Audit Financial reporting; internal and external audit; cybersecurity, including with the Regulatory and Public Policy Committee; certain other risks not otherwise assigned

Compensation and benefits; success and development plans; human capital management, including with the Regulatory and Public Policy Committee

Board effectiveness, director qualifications and continuing education, shareholder engagement, governance framework

Corporate social responsibility; government relations activity and political activities and expenditures; certain legal, regulatory, and compliance matters

Table 4 Provide Board of Director

4.1.2 Management drives Microsoft strategy and operations

Each part of the corporate has separate responsibilities, is closely connected with one another, and always updates the knowledge continuously in order that the corporate can operate smoothly by:

The Senior Leadership Team is answerable for achieving their mission, establishing and delivering on our strategy, creating Microsoft culture, inspiring and creating innovative products, establishing accountability, and controlling risk The Senior Leadership Team also aligns our structure, operations, people, policies, and compliance efforts to our mission and strategy.

The Senior Leadership Team: consists of these leading particular engineering, business, and sales and marketing groups, further as those leading central functions like finance and legal and compliance Members of the Senior Leadership Team appear before the Board regularly, with most attending a Board or committee session each quarter, and also interact with the administrators outside the boardroom [CITATION Placeholder1 \l 1033 ]

In addition, those representing certain core functions also regularly appear before the Board and its committees Representatives from the Company’s Corporate, External, and Legal Affairs group address public policy, regulatory, government affairs, compliance, legal risk, and other issues.

The Company’s Enterprise Risk Management group anticipates, identifies, assesses, and prioritizes risks, and, through regular reporting and discussion, assists our directors with the governance of risk Microsoft’s internal audit function provides objective audit, investigative, and advisory services geared toward providing assurance to senior leadership and therefore the Board that the corporate is anticipating, identifying, assessing, and prioritizing risks Our Tax and Treasury departments report regularly to the Board [CITATION Placeholder1 \l 1033 ]

The Corporate Development team, together with others, assists the Board in its governance of strategic acquisitions Our Board and its committees also work closely with representatives from the Company’s human resources function.

Human Resource Overview of Microsoft

-Recruit personnel: Microsoft follows rigorous personnel screening requirements for all employees, interns, and contingent staff All candidates are pre-screened prior to beginning employment at Microsoft Background checks on employment candidates generally include a review of the following components, to the extent permitted by law: [ CITATION Mic18 \l

All Microsoft employees are required to complete basic security awareness training Initial training occurs when a new employee begins working at Microsoft, and annual refresher training takes place every year thereafter The training is designed to provide the employee with an understanding of Microsoft's fundamental approach to security Applicable role-based security training is also required prior to granting any specific access needed for an individual's job responsibilities Microsoft employees' security training is refreshed on an annual basis, and when system or policy changes warrant new training [ CITATION Mic18 \l 1033 ]

In addition to security awareness training, Microsoft employees must complete Standards of Business Conduct training This training includes business ethics, employee safety, privacy, anti- harassment, and zero tolerance for non-ethical behavior At the end of the course, employees must attest that they’ll abide by the Microsoft code of business conduct, which is tracked at the organization level The Standards of Business Conduct training are refreshed on an annual basis.

Recruit personnel: : Microsoft, like every other organization, handles employee transfers and terminations as an element of their normal business operation When an employee changes positions or leaves the corporate, it's essential to revoke inappropriate access in a very timely manner To facilitate efficient access changes and access revocations, Microsoft uses standardized procedures and automatic processes to coordinate the HumanResources system (HRIS) with the Identity Management (IDM) system Automated orchestration between these two systems is crucial to maintaining operational consistency, safeguardingMicrosoft's online services and data, preventing privilege creep, and reducing risks associated with insider threats [ CITATION Mic18 \l 1033 ]

Operation of Microsoft

Microsoft has operations centers that support operations in their regions, including customer contract and order processing, credit and collections, information processing, and vendor management and logistics The regional center in Ireland supports the European, Middle Eastern,and African region; the center in Singapore supports the Japan, India, Greater China, and Asia-Pacific region; and the centers in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico,Redmond, Washington, and Reno, Nevada support Latin America and North America In addition to the operations centers, They also operate data centers throughout the Americas,Europe, Australia, and Asia, as well as in the Middle East and Africa [CITATIONPlaceholder1 \l 1033 ]

To serve the needs of customers around the world and to improve the quality and usability of products in international markets, Microsoft localize many of our products to reflect local languages and conventions Localizing a product may require modifying the user interface, altering dialog boxes, and translating text [CITATION Placeholder1 \l 1033 ]

Microsoft devices are primarily manufactured by third-party contract manufacturers For the majority of Microsoft products, They have the ability to use other manufacturers if a current vendor becomes unavailable or unable to meet our requirements However, some of Microsoft products contain certain components for which there are very few qualified suppliers With these components, Microsoft has limited near-term flexibility to use other manufacturers if a current vendor becomes unavailable or is unable to meet their requirements [CITATION Placeholder1 \l

Extended disruptions at these suppliers could lead to a similar disruption in our ability to manufacture devices on time to meet consumer demand.

Microsoft assesses and manages risk across the enterprise

Risk management is the process of identifying, assessing, and responding to threats or events that can impact Company or customer objectives Risk management at Microsoft is designed to anticipate new threats and provide ongoing security for their cloud systems and the customers who use them

Microsoft's risk management aligns with the Enterprise Risk Management (ERM) framework. ERM enables the overall enterprise risk management process and works with management across the enterprise to identify and ensure accountability for Microsoft's most significant risks.

Microsoft ERM enables common risk management principles across the enterprise so business units can independently facilitate consistent and comparative risk assessments This coordination gives Microsoft the ability to aggregate and report risk information in a consolidated manner for management ERM provides business units in Microsoft with common methodologies, tools, and goals for the risk management process Microsoft 365 and other engineering groups and business units use these tools to conduct individual risk assessments as part of their own risk management programs under the guidance of ERM [CITATION Placeholder1 \l 1033 ]

Figure 2 Microsoft 365 risk management program

Risk management activities fall into four phases: identification, assessment, response, and monitoring and reporting.

Identification: The risk management process starts with identifying all possible risks to all key control areas, internal and external threats, and vulnerabilities in the Microsoft 365 environment. The information guiding this process comes from multiple sources including interviews, vulnerability scans, attack simulation exercises, audit findings, and incident management activities.[CITATION Mic22 \l 1033 ]

Assessment : Each identified risk is assessed using three metrics: impact, likelihood, and control deficiency [CITATION Mic22 \l 1033 ]

 Impact refers to the damage that would occur to the service, business, or Microsoft if that risk were to be realized The impact to Microsoft may include damage to reputation, loss of customers, or legal/compliance implications.

 Likelihood defines the probability of the potential risk being realized and is calculated by analyzing the probability and frequency with which it will occur.

 Control deficiency measures the effectiveness of implemented mitigation controls

Response : Using the verified list of risks to Microsoft 365, the Trust team assigns risks to the affected service for risk response Defined guidelines help determine the appropriate risk response strategy based on the risk score and control effectiveness Risk response strategies fall into four categories:[ CITATION Mic22 \l 1033 ]

 Tolerate: Areas of low-risk exposure with a low level of control.

 Operate: Areas of low-risk exposure where controls are deemed adequate.

 Monitor: Areas of high-risk exposure where controls are deemed adequate and should be monitored for effectiveness.

 Improve: Areas of high-risk exposure with a low level of control that are top priorities in addressing.

Monitoring and reporting : Risks identified as part of the risk assessment are monitored and reported to relevant stakeholders Monitoring strategies include security monitoring, periodic risk reviews, penetration testing, and vulnerability scanning These monitoring efforts act as data sources for reporting on key performance indicators, creating dashboards, and developing formal reports, all of which inform future risk decisions[ CITATION Mic22 \l 1033 ]

Financial risk management

Mitigate the risk by derivatives

Based on annual report of Microsoft in 2021, Microsoft uses derivative instruments to manage risks related to foreign currencies, interest rates, equity prices, and credit, in order to enhance investment returns and facilitate portfolio diversification, and note that all of the instruments listed below are being used by Microsoft as of 2021 Furthermore, one of Microsoft's goals for holding derivatives is to minimize, eliminate, and manage the economic impact of these exposures as efficiently as feasible Their derivatives programs, on the other hand, comprise techniques that qualify for hedge accounting treatment, and with contracts are not identified as hedging instruments [ CITATION Mic21 \l 1066 ].

Foreign currency risk exists for certain anticipated transactions, assets, and liabilities Microsoft examines its foreign currency exposures on a daily basis to ensure that its foreign currency hedge positions are as cost-effective as possible Especially, option and forward contracts were previously used to hedge a part of expected international revenue for up to three years and were classified as cash flow hedging instruments.

 Foreign currency risks associated with certain non-U.S dollar-denominated investments are hedged using foreign exchange forward contracts that are designated as fair value hedging instruments

 Foreign currency risks related to certain Euro-denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging instruments.

Moreover, the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar are among the major currencies hedged According to table 5.1, the total notional amounts of these foreign exchange contracts sold as of June 30, 2021 and June 30, 2020 were approximately $6.1 billion and $6.7 billion, respectively.

However, certain options and forwards not designated as hedging instruments are also used to control the variability in foreign exchange rates on accounts receivable, cash, and intercompany positions, as well as other foreign currency exposures According to Table 5.1, as of June 30,

2021, the total notional amounts of these foreign exchange contracts purchased and sold were

$14.2 billion and $23.4 billion, respectively The total notional amounts of foreign exchange contracts purchased and sold as of June 30, 2020 were $11.9 billion and $15.6 billion, respectively.

Interest rate swaps, which are categorized as fair value hedging instruments, are used to effectively convert fixed interest rates to floating interest rates, thereby hedging interest rate risks associated with certain fixed-rate debt.

The interest rate risks associated with the securities in Microsoft's fixed-income portfolio vary depending on their maturity.hus, Microsoft uses exchange-traded option and futures contracts, as well as over-the-counter swap and option contracts, to manage the average maturity of its fixed- income portfolio in order to achieve economic returns that correlate to certain broad-based fixed- income indices These contracts are not designated as hedging instruments and are included in

“Other contracts” in the tables 5.1 According to table 5.1, as of June 30, 2021, the total notional amounts of fixed-interest rate contracts refer as “other contract” purchased and sold were $2.4 billion and $763 million, respectively As of June 30, 2020, the total notional amounts of fixed- interest rate contracts purchased and sold were $1.8 billion and $757 million, respectively.

Securities held in Microsoft equity investments portfolio are subject to market price risk At times, they may hold options, futures, and swap contracts, none of which are designated as hedging instruments Besides, from time to time, to hedge their price risk, Microsoft may use and designate equity derivatives as hedging instruments, including puts, calls, swaps, and forwards

Microsoft's fixed-income portfolio is diversified and consists primarily of investment-grade securities They use credit default swap contracts to manage credit exposures relative to broad- based indices and to facilitate portfolio diversification These contracts are not designated as hedging instruments and are included in “Other contracts” in the tables 5.1.

5.1.5 Credit-Risk-Related Contingent Features

Certain Microsoft counterparty agreements for derivative instruments contain provisions that require their issued and outstanding long-term unsecured debt to maintain an investment-grade credit rating and require them to maintain a minimum liquidity of $1.0 billion To the extent they fail to meet these requirements, they will be required to post collateral, similar to the standard convention related to over-the-counter derivatives As of June 30, 2021, Microsoft's long-term unsecured debt rating was AAA, and cash investments were in excess of $1.0 billion As a result, no collateral was required to be posted.

Table 5 The notional amounts of Microsoft's outstanding derivative instruments measured in U.S dollar equivalents

Not Designated as Hedging Instruments

Table 6 Presenting Microsoft’s derivative instruments

Gross amounts of derivatives offset in the balance sheet

Gross derivative assets and liabilities subject to legally enforceable master netting agreements for which we have elected to offset were $395 million and $335 million, respectively, as of June

30, 2021, and $399 million and $399 million, respectively, as of June 30, 2020.[ CITATIONMic21 \l 1066 ]

Monitoring thousands of bank accounts, and providing just-in-time cash manahement on a

on a global basis by The Microsoft Treasury

The Microsoft Treasury department is in charge of the company's assets, which include cash and investments, accounts receivable, stock, and other investments They serve as an in-house bank for 190 countries, monitor thousands of bank accounts, and provide global just-in-time cash management [ CITATION Jes17 \l 1066 ] Microsoft also manages a centralized treasury for approximately 450 subsidiaries in 118 countries In addition, the company has over 1,300 bank accounts more than 85 financial ties around the world [ CITATION Cit19 \l 1066 ] Each dollar maintained in a local subsidiary bank account is particularly vulnerable to counterparty risk,sovereign risk, currency fluctuations, fraud, and environmental issues Furthermore, Microsoft treasury wires about a billion dollars per month to support the operations of its foreign businesses As a result, with tons of unpredictable events in its subsidiaries including the war inUkraine, the “Arab Spring” in Egypt and Libya, or “Hurricane Maria” in Puerto Rico, the company has been forced to deal with with frozen funds, strict forex controls, and limited banking hours For this reason, reducing risks associated with funds held outside of Microsoft's portfolios and ensuring that local Microsoft employees and partners are paid have become top concerns.

Specifically, to address such risks in the long run, Microsoft's treasury department has expanded its role within the company to develop strategies in order to ensure that partners in accounts payable, payroll, collections, and local finance have a strategic contingency plan in the event of political, economic, or environmental crises According to Jim Scurlock, Microsoft's head of cash management, the company has had a few incidents that have hampered their ability to move money across borders, but after seeing similar issues in other places, they have already focused on reducing their cash around the world and reducing counterparty and sovereign risks that could endanger their liquidity [ CITATION Wat19 \l 1066 ] Consequently, Microsoft Treasury initiated an effort to reduce cash levels while also developing a contingency action plan that various treasury groups could utilize to respond to operational-risk events.

Furthermore, on 11/2019, according to [ CITATION Aus19 \l 1066 ], Microsoft also chose BNYMellon as the global custodian for its Treasury Group, which controls $130 billion in assets As its new custodian, BNY Mellon will offer a complex cross-business bundle of services, including custody, collateral management, performance measurement, and liquidity services, all of which will tailored to the company's cash portfolio needs Especially, Microsoft's global custody,collateral management, derivatives processing, institutional accounting, and foreign currency needs will all be served by BNY Mellon's platform By leveraging its selection of APIs,applications, and seamless access to third-party technology providers, BNY Mellon’s platform will allow Microsoft to optimize its resources and continue to leverage industry best practices In addition, BNY Mellon's strong intellectual capital and industry experience with large-scale implementations and aligning technological solutions with clients' business demands would also benefit Microsoft [ CITATION Aus19 \l 1066 ].

Gross margin