MasterCard 2011 Annual Report Download - page 76

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Foreign Exchange Risk
We enter into forward contracts to manage foreign exchange risk associated with anticipated receipts and
disbursements which are either transacted in a non-functional currency or valued based on a currency other than
our functional currencies. We also enter into 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 our exposure to transaction gains and losses resulting from fluctuations of foreign currencies against
our functional currencies, principally the U.S. dollar and euro. The terms of the forward contracts are generally
less than 18 months.
As of December 31, 2011, all contracts to purchase and sell foreign currency had been entered into with
customers of MasterCard. MasterCard’s derivative contracts are summarized below:
December 31, 2011 December 31, 2010
Notional
Estimated
Fair Value1Notional
Estimated
Fair Value1
(in millions)
Commitments to purchase foreign currency ........ $ 21 $— $ 38 $1
Commitments to sell foreign currency ............. 279 2 148 (2)
1Amounts represent gross fair value amounts while these amounts may be netted for actual balance sheet
presentation.
Our settlement activities are subject to foreign exchange risk resulting from foreign exchange rate fluctuations.
This risk is limited to the typical one business day time-frame between setting the foreign exchange rates and
clearing the financial transactions and by confining the supported settlement currencies to the U.S. dollar or one of
17 other transaction currencies. The remaining 133 transaction currencies are settled in one of the supported
settlement currencies or require local settlement netting arrangements that minimize our foreign exchange exposure.
Interest Rate Risk
Our interest rate sensitive assets are our investments in debt securities, which we generally hold as
available-for-sale investments. Our general policy is to invest in high quality securities, while providing adequate
liquidity and maintaining diversification to avoid significant exposure. The fair value and maturity distribution of
the Company’s available for sale investments as of December 31 was as follows:
Maturity
(in millions) (in millions)
Financial Instrument Summary Terms
Fair Market
Value at
December 31,
2011 2012 2013 2014 2015 2016
2017 and
there-after
Municipal securities . . . Fixed /Variable Interest $ 393 $109 $ 74 $ 62 $ 59 $ 40 $ 49
Corporate securities . . . Fixed /Variable Interest 325 146 91 88 — — —
U.S. Government and
Agency securities . . . Fixed /Variable Interest 205 176 15343 4
Taxable short-term
bond funds ........ Fixed /Variable Interest12031————— —
Asset-backed
securities ......... Fixed /Variable Interest 69 43 24 2 — — —
Auction rate
securities ......... Variable Interest 70 ————— 70
Other .............. Fixed /Variable Interest 20 16 4 — — — —
Total ............... $1,285 $490 $208 $155 $ 63 $ 43 $123
1Short-term bond funds of $203 million have no contractual maturity.
72