Google 2009 Annual Report Download - page 98

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Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Gains (Losses) Recognized in Income on
Derivatives (Ineffective Portion and Amount
Excluded from Effectiveness Testing)1
Year Ended December 31,
Derivatives in Cash Flow Hedging Relationship Location 2008 2009
Foreign exchange option contracts ............................... Interest income
and other, net $(136,013) $(267,984)
1Gains (losses) related to the ineffectiveness portion of the hedges were not material in all periods presented.
The effect of derivative instruments in fair value hedging relationship on income for the year ended
December 31, 2009 is summarized below (in thousands):
Gains (Losses) Recognized in Income on Derivatives2
Derivatives in Fair Value Hedging Relationship Location 2009
Foreign exchange forward contracts ......................... Interest income and
other, net $2,169
Hedged item .............................................. Interest income and
other, net (2,181)
Total ..................................................... $ (12)
2Gains (losses) related to the ineffectiveness portion and the amount excluded from effectiveness testing of
the hedges were not material.
The effect of derivative instruments not designated as hedging instruments on income for the years ended
December 31, 2008 and 2009 is summarized below (in thousands):
Gains (Losses) Recognized in Income on Derivatives
Year Ended December 31,
Derivatives Not Designated As Hedging Instruments Location 2008 2009
Foreign exchange forward contracts ....................... Interest income
and other, net $145,250 $(77,656)
Note 5. Fair Value Measurements
We measure our cash equivalents, marketable securities, ARS, and foreign currency derivative contracts at
fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that market participants would use in pricing an
asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and
for inputs used in the valuation methodologies in measuring fair value:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activities.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value.
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