Intel 2008 Annual Report Download - page 60

Table of Contents
We are exposed to financial market risks, primarily changes in currency exchange rates, interest rates, and equity prices. We
use derivative financial instruments primarily to manage currency exchange rate risk and interest rate risk, and to a lesser
extent, equity market risk and commodity price risk. All of the potential changes noted below are based on sensitivity analyses
performed on our financial positions as of December 27, 2008 and December 29, 2007. Actual results may differ materially.
Currency Exchange Rates
We generally hedge currency risks of non-U.S.-dollar-denominated investments in debt instruments with offsetting currency
borrowings, currency forward contracts, or currency interest rate swaps. Gains and losses on these
non-U.S.-currency investments would generally be offset by corresponding losses and gains on the related hedging
instruments, resulting in a negligible net exposure.
A majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, certain operating
expenditures and capital purchases are incurred in or exposed to other currencies, primarily the euro, the Japanese yen, and the
Israeli shekel. We have established balance sheet and forecasted transaction currency risk management programs to protect
against fluctuations in fair value and the volatility of future cash flows caused by changes in exchange rates. We generally
utilize currency forward contracts and, to a lesser extent, currency options in these hedging programs. Our hedging programs
reduce, but do not always entirely eliminate, the impact of currency exchange rate movements (see “Risk Factors” in Part I,
Item 1A of this Form 10-K). We considered the historical trends in currency exchange rates and determined that it was
reasonably possible that a weighted average adverse change of 20% in currency exchange rates could be experienced in the
near term. Such an adverse change, after taking into account hedges and offsetting positions, would have resulted in an
adverse impact on income before taxes of less than $55 million at the end of 2008 (less than $35 million at the end of 2007,
using a weighted average adverse change of 15% in currency exchange rates). The weighted average adverse change increased
from the end of 2007 to the end of 2008, due to a higher relative weighting of more volatile currencies.
Interest Rates
We are exposed to interest rate risk related to our investment portfolio and debt issuances. The primary objective of our
investments in debt instruments is to preserve principal while maximizing yields. To achieve this objective, the returns on our
investments in debt instruments are generally based on three-month LIBOR, or, if the maturities are longer than three months,
the returns are generally swapped into U.S. dollar three-month LIBOR-based returns. The current financial markets are
extremely volatile. A hypothetical 1.0% decrease in interest rates, after taking into account hedges and offsetting positions,
would have resulted in a decrease in the fair value of our net investment position of approximately $135 million as of
December 27, 2008 and $80 million as of December 29, 2007. The hypothetical 1.0% interest rate decrease would have
resulted in an increase in the fair value of our debt issuances of approximately $150 million as of December 27, 2008 and
would have resulted in an increase in the fair value of our investment portfolio of approximately $15 million as of
December 27, 2008 (an increase in the fair value of our debt issuances of approximately $95 million as of December 29, 2007
and an increase in the fair value of our investment portfolio of approximately $15 million as of December 29, 2007). The
fluctuations in fair value of our debt issuances and investment portfolio reflect only the direct impact of the change in interest
rates. Other economic variables, such as equity market fluctuations and changes in relative credit risk, could result in a
significantly higher decline in our net investment portfolio. For further information on how credit risk is factored into the
valuation of our investment portfolio and debt issuances, see “Fair Value” in Part II, Item 7 of this Form 10-K.
Equity Prices
Our marketable equity investments include marketable equity securities and equity derivative instruments such as warrants and
options. To the extent that our marketable equity securities have strategic value, we typically do not attempt to reduce or
eliminate our equity market exposure through hedging activities; however, for our investments in strategic equity derivative
instruments, including warrants, we may enter into transactions to reduce or eliminate the equity market risks. For securities
that we no longer consider strategic, we evaluate legal, market, and economic factors in our decision on the timing of disposal
and whether it is possible and appropriate to hedge the equity market risk.
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ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK