[MBCook]

Is it really that surprising? Let's make a highly simplified analogy with easy numbers.

You have two bank accounts, only in this example they're different currencies. One in Pesos, one in Francs. Let's make things easy and pretend that 1 Peso is worth 1 Franc.

Your customers pay in the currency they have. Lots of people pay in you Pesos, but some pay you in Francs. So after a while you have 100 P but only 20 F.

Now most of your bills have to be paid in F. You have some you can pay in P but the money comes in fast enough that will never run dry. Unfortunately the F account may not be so steady between paychecks and you may overdraft. If that happens people with pitchforks will come after you. You need to do something to make sure that you always have enough in the F account.

So there are two obvious options. You can move some of your Pesos over to Francs, but there is a BIG FEE for transferring to that account. You'd like to move 80 Pesos over, but after the fee you only get 40 P in your account. So instead of 100 P and 20 F (for 120 units, since it's a 1:1 exchange) you have 20 P and 60 F (for only 80 units). You can still pay all your bills, but you just lost 1/3 of your money and now your spouse is mad at you.

Or you could do something else. You could take out a loan in Francs when your balance gets low so you can pay your bills until more F come in. Banks are happy to lend you F because you have a nice house and plenty of P and they have a lot of money to lend right now. You have to pay interest, but that's like 5 F so it's not a big deal. Do things this way and in the end you have 100 P + 15 F (a total of 115 units of value) so you've only lost about 4% of your total net worth and you were still able to pay your bills on time.

Did that help? After reading it back over I get the feeling I just spent 10+ minutes but it's not going to clear things up for people.

[thanksgiving]

> You could take out a loan in Francs when your balance gets low so you can pay your bills until more F come in.

Sorry if this is obvious but just want to clarify this for myself: Do you plan to pay back the entirety of the loan, with interest with the account in French Francs? If not, aren't you just delaying the inevitable? If yes, is there any reason to keep the peso account locked up (for lack of a better term) in liquid assets? Perhaps you'd be better served by taking risks with that money?

[phillmv]

>Do you plan to pay back the entirety of the loan, with interest with the account in French Francs?

Of course. You earn more than enough Francs to cover your expenses; it's just cheaper to borrow money right now than to convert from Pesos.

> If yes, is there any reason to keep the peso account locked up (for lack of a better term) in liquid assets? Perhaps you'd be better served by taking risks with that money?

The problem is precisely that: there's no good place to put that much money. Apple literally can't think of enough things to put all that money to use. Interest inflation rates are pretty low, so keeping it in TBills or whatever isn't really hurting them.

That at least, is my understanding.

[ericabiz]

Apple is hoping for a tax holiday or tax law change in the U.S. Until that happens, they are happy to kick the can down the road for a while.

[brisance]

Issuing debt in the form of bonds means having to pay interest, but interest rates have been low for some time now.

It's not delaying "the inevitable". It's delaying until there is tax reform, hopefully with better conditions e.g. lower tax rates. Laws are made by humans, after all.

[yeukhon]

It does clear up a lot. I never really understood the whole economic thing while as undergraduate. A lot of companies have this issue, so they would hire offshore workers not only because offshore tend to be cheaper but also because they just don't want to move the money back to US due to taxation.

Here is a maybe a stupid idea, what if they just keep investing in a new company in the US with their offshore money, and then Apple buy the company for $1? what about buying lands? Can they keep more foreign money with lower tax rate that way?

[achompas]

> what if they just keep investing in a new company in the US with their offshore money

My understanding is that they'd have to repatriate any money they use towards this effort.

[DonHopkins]

So they pay interest to the banks, so they can buy the government, instead of paying tax to the government, so they can buy jobs and bridges and health care.

[epa]

Great analogy