MasterCard 2015 Annual Report Download - page 52

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46
As of December 31, 2015, the majority of derivative contracts to hedge foreign currency fluctuations had been entered into with
customers of MasterCard. MasterCard’s derivative contracts are summarized below:
December 31, 2015 December 31, 2014
Notional Estimated Fair
Value Notional Estimated Fair
Value
(in millions)
Commitments to purchase foreign currency . . . . . . . . . . . . $ 232 $ 1 $ 47 $ 4
Commitments to sell foreign currency . . . . . . . . . . . . . . . . . 1,430 12 614 27
Options to sell foreign currency . . . . . . . . . . . . . . . . . . . . . . 44 1 — —
We use foreign currency denominated debt to hedge a portion of our net investment in foreign operations against adverse
movements in exchange rates, with changes in the value of the debt recorded within currency translation adjustment in
accumulated other comprehensive income (loss). During the fourth quarter of 2015, we designated our euro-denominated debt
as a net investment hedge for a portion of our net investment in European foreign operations. Our euro-denominated debt is
vulnerable to changes in the euro to U.S. dollar exchange rates. The principal amounts of our euro-denominated debt as well
as the effective interest rates and scheduled annual maturities of the principal is included in Note 12 (Debt) to the consolidated
financial statements included in Part II, Item 8.
Our settlement activities are subject to foreign exchange risk resulting from foreign exchange rate fluctuations. This risk is typically
limited to the one business day between setting the foreign exchange rates and clearing the financial transactions.
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 for debt
securities as of December 31 was as follows:
Maturity
Fair Market
Value at
December 31,
2015 2016 2017 2018 2019 2020
2021
and
there-
after
Financial Instrument Summary Terms
(in millions)
Municipal securities . . . . . . . . . . . . . . . Fixed / Variable Interest $ 62 $ 48 $ 14 $ — $ — $ — $ —
U.S. government and agency
securities . . . . . . . . . . . . . . . . . . . . . . . . Fixed / Variable Interest 72 47 17 2 — — 6
Corporate securities . . . . . . . . . . . . . . . Fixed / Variable Interest 630 204 299 123 3 — 1
Asset-backed securities. . . . . . . . . . . . . Fixed / Variable Interest 57 1 20 22 13 1 —
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed / Variable Interest 38 9 29 ————
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 859 $ 309 $ 379 $ 147 $ 16 $ 1 $ 7
Maturity
Financial Instrument Summary Terms
Fair Market
Value at
December 31,
2014 2015 2016 2017 2018 2019
2020
and
there-
after
(in millions)
Municipal securities . . . . . . . . . . . . . . . Fixed / Variable Interest $ 135 $ 82 $ 48 $ 2 $ — $ — $ 3
U.S. government and agency
securities . . . . . . . . . . . . . . . . . . . . . . . . Fixed / Variable Interest 199 132 52 2 — — 13
Corporate securities . . . . . . . . . . . . . . . Fixed / Variable Interest 618 325 211 82 — — —
Asset-backed securities. . . . . . . . . . . . . Fixed / Variable Interest 178 4 59 75 28 7 5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed / Variable Interest 25 15 5 1 — — 4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,155 $ 558 $ 375 $ 162 $ 28 $ 7 $ 25
At December 31, 2015, we have U.S. dollar-denominated and euro-denominated debt, which is subject to interest rate risk. The
principal amounts of this debt as well as the effective interest rates and scheduled annual maturities of the principal is included