Google 2013 Annual Report Download - page 47

41
PART II
ITEM7A.QuantitativeandQualitativeDisclosuresAboutMarketRisk
We considered the historical trends in currency exchange rates and determined that it was reasonably possible that changes
inexchangeratesof20%couldbeexperiencedinthenearterm.IftheU.S.dollarweakenedby20%,theamountrecordedin
AOCIrelatedtoourforeignexchangeoptionsbeforetaxeectwouldhavebeenapproximately$9millionand$4millionlowerat
December 31, 2012 and December 31, 2013, and the total amount of expense recorded as interest and other income, net, would
havebeenapproximately$140millionand$123millionhigherintheyearsendedDecember31,2012andDecember31,2013.If
theU.S.dollarstrengthenedby20%,theamountrecordedinaccumulatedAOCIrelatedtoourforeignexchangeoptionsbefore
taxeectwouldhavebeenapproximately$1.7billionhigherbothatDecember31,2012andDecember31,2013,andthetotal
amountofexpenserecordedasinterestandotherincome,net,wouldhavebeenapproximately$159millionand$120million
higherintheyearsendedDecember31,2012andDecember31,2013.
Inaddition,weuseforeignexchangeforwardcontractstoosettheforeignexchangeriskonourassetsandliabilitiesdenominated
incurrenciesotherthanthelocalcurrencyofthesubsidiary.Theseforwardcontractsreduce,butdonotentirelyeliminatethe
impactofcurrencyexchangeratemovementsonourassetsandliabilities.Theforeigncurrencygainsandlossesontheassets
andliabilitiesarerecordedininterestandotherincome,net,whichareosetbythegainsandlossesontheforwardcontracts.
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$9millionand$52millionatDecember31,2012and
December31,2013.TheadverseimpactatDecember31,2012andDecember31,2013isafterconsiderationoftheosetting
eectofapproximately$731millionand$853millionfromforeignexchangecontractsinplaceforthemonthsofDecember31,
2012andDecember31,2013.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
Ourinvestmentstrategyistoachieveareturnthatwillallowustopreservecapitalandmaintainliquidityrequirements.Weinvest
primarilyinU.S.governmentanditsagencysecurities,moneymarketandotherfunds,corporatedebtsecurities,mortgage-backed
securities,debtinstrumentsissuedbyforeigngovernments,municipalsecurities,timedeposits,andassetbackedsecurities.By
policy,welimittheamountofcreditexposuretoanyoneissuer.Ourinvestmentsinbothxedrateandoating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oatingratesecuritiesmayproducelessincomethanpredictedifinterestratesfall.Asof
December31,2012andDecember31,2013,unrealizedlossesonourmarketabledebtsecuritieswereprimarilyduetotemporary
interestrateuctuationsasaresultofhighermarketinterestratescomparedtothexedinterestratesonourdebtsecurities.
WeaccountforbothxedandvariableratesecuritiesatfairvaluewithchangesongainsandlossesrecordedinAOCIuntilthe
securitiesaresold.Weuseinterestratederivativecontractstohedgerealizedgainsandlossesonoursecurities.Thesederivative
contractsareaccountedforatfairvaluewithchangesinfairvaluerecordedinInterestandotherincome,net.
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$1.1billionand$1.0billion
atDecember31,2012andDecember31,2013,aftertakingintoconsiderationtheosettingeectfrominterestratederivative
contractsoutstandingasofDecember31,2012andDecember31,2013.Ahypothetical1.00%(100basispoints)decrease
ininterestrateswouldhaveresultedinadecreaseinthefairvaluesofourforward-startinginterestswapsofapproximately
$107millionand$92millionatDecember31,2012andDecember31,2013.
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