Google 2008 Annual Report Download - page 77

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comprehensive income before tax effect would have been approximately $750 million higher at December 31,
2008, and the total amount recorded as interest income and other, net, would have been approximately $85
million lower in the year ended December 31, 2008.
Transaction Exposure
Our exposure to foreign currency transaction gains and losses is the result of certain net receivables due from
our foreign subsidiaries and customers being denominated in currencies other than the functional currency of the
subsidiary, primarily the Euro, the British pound and the Japanese yen. Our foreign subsidiaries conduct their
businesses in local currency. We have entered into foreign exchange contracts to offset the foreign exchange risk
on certain monetary assets and liabilities denominated in currencies other than the local currency of the subsidiary.
The notional principal of foreign exchange contracts to purchase U.S. dollars with foreign currencies was $1.5
billion and $2.6 billion at December 31, 2007 and December 31, 2008. The notional principal of foreign exchange
contracts to sell U.S. dollars with foreign currencies was $54.2 million at December 31, 2008. The notional
principal of foreign exchange contracts to purchase Euros with other currencies was €296.5 million (or
approximately $433.4 million) and €630.5 million (or approximately $897.6 million) at December 31, 2007 and
December 31, 2008.
We considered the historical trends in currency exchange rates and determined that it was reasonably
possible that adverse changes in exchange rates of 20% for all currencies could be experienced in the near term.
These changes would have resulted in an adverse impact on income before income taxes of approximately $80
million and $16 million at December 31, 2007 and December 31, 2008. The adverse impact at December 31, 2007
and December 31, 2008 is after consideration of the offsetting effect of approximately $328 million and $555
million from forward exchange contracts in place for the months of December 2007 and December 2008. These
reasonably possible adverse changes in exchange rates of 20% were applied to total monetary assets
denominated in currencies other than the local currencies at the balance sheet dates to compute the adverse
impact these changes would have had on our income before taxes in the near term.
Interest Rate Risk
We invest our excess cash primarily in highly liquid debt instruments of U.S. government and its agencies,
municipalities in the U.S., time deposits, money market mutual funds and corporate securities. By policy, we limit
the amount of credit exposure to any one issuer.
Investments in both fixed rate and floating rate interest earning securities carry a degree of interest rate risk.
Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while
floating rate securities may produce less income than predicted if interest rates fall. Due in part to these factors,
our income from investments may decrease in the future.
We considered the historical volatility of short term interest rates and determined that it was reasonably
possible that an adverse change of 100 basis points could be experienced in the near term. A hypothetical 1.00%
(100 basis-point) increase in interest rates would have resulted in a decrease in the fair values of our marketable
securities of approximately $87 million and $83 million at December 31, 2007 and December 31, 2008.
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