Canon 2004 Annual Report Download - page 48

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Available-for-sale securities Millions of yen Thousands of U.S. dollars
Cost Fair Value Cost Fair Value
Due within one year ¥ 301 341 $ 2,895 3,279
Due after one year through five years 1,607 2,191 15,452 21,068
Due after five years 1,049 1,047 10,086 10,067
Equity securities 10,302 26,950 99,058 259,134
¥13,259 30,529 $ 127,491 293,548
Held-to-maturity securities Millions of yen Thousands of U.S. dollars
Cost Fair Value Cost Fair Value
Due after one year through five years ¥ 21,460 21,460 $ 206,346 206,346
MARKET RISK EXPOSURE
Canon is exposed to market risks, including changes in foreign
exchange rates, interest rates and prices of marketable
securities and investments. In order to hedge the risks of
changes in foreign exchange rates and interest rates, Canon
uses derivative financial instruments.
Equity price risk
Canon holds marketable securities included in current assets
for short-term investments, which consists generally of highly-
liquid and low-risk instruments. Investments included in
noncurrent assets are held as long-term investments. Canon
does not hold marketable securities and investments for
trading purposes.
Maturities and fair values of such marketable securities
and investments were as follows at December 31, 2004.
Foreign exchange rate and interest rate risk
Canon operates internationally, exposing it to the risk of
changes in foreign currency exchange rates and interest rates.
Derivative financial instruments are comprised principally of
foreign exchange contracts and interest rate swaps utilized by
the Company and certain of its subsidiaries to reduce these
risks. Canon assesses foreign currency exchange rate risk and
interest rate risk by continually monitoring changes in these
exposures and by evaluating hedging opportunities. Canon
does not hold or issue derivative financial instruments for
trading purposes. Canon is also exposed to credit-related
losses in the event of non-performance by counterparties to
derivative financial instruments, but it is not expected that any
counterparties will fail to meet their obligations, because most
of the counterparties are internationally recognized financial
institutions and contracts are diversified across a number of
major financial institutions.
Canon’s international operations expose Canon to the risk
of changes in foreign currency exchange rates. Canon uses
foreign exchange contracts to manage certain foreign
currency exchange exposures principally from the exchange of
U.S. dollar and euro into Japanese yen. These contracts are
primarily used to hedge the foreign currency exposure of
forecasted intercompany sales and intercompany trade
receivables which are denominated in foreign currencies. In
accordance with Canon’s policy, a specific portion of foreign
currency exposure resulting from forecasted intercompany
sales are hedged using foreign exchange contracts which
principally mature within three months.
The following table provides information about Canon’s
major derivative financial instruments related to foreign
Thousands of U.S. dollars
Forwards to sell foreign currencies: U.S.$ euro Others Total
Contract amounts $ 3,029,971 2,287,029 300,385 5,617,385
Estimated fair value 33,904 (78,337) (894) (45,327)
Forwards to buy foreign currencies:
Contract amounts $ 184,125 50,865 93,866 328,856
Estimated fair value (1,308) (2,115) (10,337) (13,760)
Millions of yen
Forwards to sell foreign currencies: U.S.$ euro Others Total
Contract amounts ¥ 315,117 237,851 31,240 584,208
Estimated fair value 3,526 (8,147) (93) (4,714)
Forwards to buy foreign currencies:
Contract amounts ¥ 19,149 5,290 9,762 34,201
Estimated fair value (136) (220) (1,075) (1,431)