MasterCard 2009 Annual Report Download - page 140

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
Of the total estimated Settlement Exposure under the MasterCard brand, net of collateral, the U.S. accounted
for approximately 40% and 49% at December 31, 2009 and 2008, respectively. The second largest country that
accounted for this Settlement Exposure was the United Kingdom, at approximately 9% and 10% at December 31,
2009 and 2008, respectively. A significant portion of the increase in Gross Settlement Exposure is attributable to
an affiliate member domiciled outside the U.S. which became a principal member during 2009. Of the total
uncollateralized Settlement Exposure attributable to non-compliant members, five members represented
approximately 56% and 48% at December 31, 2009 and December 31, 2008, respectively.
MasterCard guarantees the payment of MasterCard-branded travelers cheques in the event of issuer default.
The guarantee estimate is based on all outstanding MasterCard-branded travelers cheques, reduced by an
actuarial determination of cheques that are not anticipated to be presented for payment. The term and amount of
the guarantee are unlimited. MasterCard calculated its MasterCard-branded travelers cheques exposure under this
guarantee as $400,832 and $446,679 at December 31, 2009 and December 31, 2008, respectively. The reduction
in travelers cheques exposure is attributable to MasterCard branded travelers cheques no longer being issued.
A significant portion of the Company’s travelers cheques risk is concentrated in one MasterCard travelers
cheques issuer. MasterCard has obtained an unlimited guarantee estimated at $313,009 and $348,995 at
December 31, 2009 and December 31, 2008, respectively, from a financial institution that is a member, to cover
all of the exposure of outstanding travelers cheques with respect to such issuer. In addition, MasterCard has
obtained a limited guarantee estimated at $14,481 and $15,949 at December 31, 2009 and December 31, 2008,
respectively, from a financial institution that is a member in order to cover the exposure of outstanding travelers
cheques with respect to another issuer. These guarantee amounts have also been reduced by an actuarial
determination of travelers cheques that are not anticipated to be presented for payment.
Beginning in 2008 and continuing in 2009, many of the Company’s financial institution customers were
directly and adversely impacted by the unprecedented events that occurred in the financial markets around the
world. The ongoing economic turmoil presents increased risk that the Company may have to perform under its
settlement and travelers cheque guarantees. The Company’s global risk management policies and procedures,
which are revised and enhanced from time to time, continue to be effective as evidenced by the historically low
level of losses that the Company has experienced from customer financial institution failures, including no losses
in the last several years.
The Company enters into business agreements in the ordinary course of business under which the Company
agrees to indemnify third parties against damages, losses and expenses incurred in connection with legal and
other proceedings arising from relationships or transactions with the Company. As the extent of the Company’s
obligations under these agreements depends entirely upon the occurrence of future events, the Company’s
potential future liability under these agreements is not determinable.
Note 23. Foreign Exchange Risk Management
The Company enters into foreign currency forward contracts to manage risk associated with anticipated
receipts and disbursements which are either transacted in a non-functional currency or valued based on a
currency other than its functional currencies. The Company also enters into foreign currency forward contracts to
offset possible changes in value due to foreign exchange fluctuations of assets and liabilities denominated in
foreign currencies. The objective of this activity is to reduce the Company’s exposure to transaction gains and
losses resulting from fluctuations of foreign currencies against its functional currencies. On January 1, 2009, the
Company adopted the new disclosure requirements for derivative instruments and hedging activities. This
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