Google 2010 Annual Report Download - page 58

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The notional principal of foreign exchange contracts to purchase U.S. dollars with foreign currencies was $2.4
billion and $1.0 billion at December 31, 2009 and 2010. The notional principal of foreign exchange contracts to sell
U.S. dollars for foreign currencies was $115 million and $84 million at December 31, 2009 and 2010. The notional
principal of foreign exchange contracts to purchase Euros with other currencies was €618 million (or
approximately $889 million) and €991 million (or approximately $1.3 billion) at December 31, 2009 and 2010. The
notional principal of foreign exchange contracts to sell Euros for other foreign currencies was €8 million (or
approximately $11 million) and €6 million (or approximately $8 million) at December 31, 2009 and 2010.
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 $102
million and $20 million at December 31, 2009 and 2010. The adverse impact at December 31, 2009 and 2010 is
after consideration of the offsetting effect of approximately $594 million and $467 million from forward exchange
contracts in place for the months of December 2009 and 2010. These reasonably possible adverse changes in
exchange rates of 20% were applied to total monetary assets and liabilities 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 income taxes in the near term.
Interest Rate Risk
We invest our excess cash primarily in highly liquid debt instruments of the U.S. government and its agencies,
municipalities in the U.S., debt instruments issued by foreign governments, time deposits, money market and other
funds, mortgage-backed securities, 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 points) increase in interest rates would have resulted in a decrease in the fair values of our marketable
securities of approximately $291 million and $895 million at December 31, 2009 and 2010.
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