MasterCard 2013 Annual Report Download - page 104

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
100
stated maximum exposure. 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.
Historically, payments made by the Company under these types of contractual arrangements have not been material.
Note 20. 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 currency. The Company also enters into foreign currency derivative contracts to offset possible changes in
value due to foreign exchange fluctuations of earnings, assets and liabilities denominated in currencies other than the
functional currency of the entity. The objective of these activities is to reduce the Company’s exposure to gains and
losses resulting from fluctuations of foreign currencies against its functional and reporting currencies.
The Company does not designate foreign currency derivatives as hedging instruments pursuant to the accounting
guidance for derivative instruments and hedging activities. The Company records the change in the estimated fair value
of the outstanding derivatives at the end of the reporting period to its consolidated balance sheet and consolidated
statement of operations.
As of December 31, 2013, all forward contracts to purchase and sell foreign currency had been entered into with
customers of MasterCard. MasterCard’s derivative contracts are summarized below:
December 31, 2013 December 31, 2012
Notional Estimated Fair
Value Notional Estimated Fair
Value
(in millions)
Commitments to purchase foreign currency . . . . . . . $ 23 $ (1) $ 76 $ (1)
Commitments to sell foreign currency. . . . . . . . . . . . 1,722 1 1,571 (2)
Balance Sheet Location:
Accounts Receivable*. . . . . . . . . . . . . . . . . . . . . $ 13 $ 12
Other Current Liabilities* . . . . . . . . . . . . . . . . . (13) (15)
* The fair values of derivative contracts are presented on a gross basis on the balance sheet and are subject to enforceable master netting
arrangements, which contain various netting and setoff provisions.
The amount of gain (loss) recognized in income for the contracts to purchase and sell foreign currency are summarized
below:
Year Ended December 31,
2013 2012 2011
(in millions)
Foreign currency derivative contracts
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48 $ 22 $ (6)
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (6) (3)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52 $ 16 $ (9)
The fair value of the foreign currency forward contracts generally reflects the estimated amounts that the Company
would receive (or pay), on a pre-tax basis, to terminate the contracts at the reporting date based on broker quotes for
the same or similar instruments. The terms of the foreign currency forward contracts are generally less than 18 months.
The Company had no deferred gains or losses related to foreign exchange in accumulated other comprehensive income
as of December 31, 2013 and 2012 as there were no derivative contracts accounted for under hedge accounting.
The Company’s derivative financial instruments are subject to both market and counterparty credit risk. Market risk
is the risk of loss due to the potential change in an instrument’s value caused by fluctuations in interest rates and other
variables related to currency exchange rates. The effect of a hypothetical 10% adverse change in foreign currency rates