MoneyGram 2008 Annual Report Download - page 67

Table of Contents
and "Interest expense." As a result of the current federal funds rate environment, the outcome of the income statement simulation analysis
on "Investment commissions expense" in a declining rate scenario is not meaningful as we have no downside risk. In the current federal
funds rate environment, the worst case scenario is that we would not owe any commissions to our financial institution customers as the
commission rate would decline to zero or become negative. Accordingly, we have not presented the impact of the simulation in a
declining rate environment for "Investment commissions expense." The following table summarizes the changes to affected components
of the income statement under various scenarios.
Table 13 — Interest Rate Sensitivity Analysis
Basis Point Change in Interest Rates
Down Down Down Up Up Up
(Amounts in thousands) 200 100 50 50 100 200
Interest income $ (2,589) $ (2,391) $ (2,222) $ 11,275 $ 22,737 $ 45,556
Percent change (9.0%) (8.3%) (7.7%) 39.0% 78.7% 157.6%
Investment commissions expense NM NM NM $ (3,215) $ (9,652) $ (23,094)
Percent change NM NM NM NM NM NM
Interest expense $ 915 $ 900 $ 832 $ (1,048) $ (2,097) $ (4,193)
Percent change 0.9% 0.9% 0.8% (1.0%) (2.1%) (4.1%)
Pre-tax loss from continuing operations NM NM NM $ 7,012 $ 10,988 $ 18,268
Percent change NM NM NM 9.4% 14.8% 24.6%
NM = Not meaningful
Foreign Currency Exchange Risk
Foreign currency exchange risk represents the potential adverse effect on our earnings from fluctuations in foreign exchange rates
affecting certain receivables and payables denominated in foreign currencies, as well as the potential adverse effect on our earnings
originating in foreign currencies. We offer our products and services through a network of agents and financial institutions with locations
in over 189 countries. Foreign exchange risk is managed through the structure of our business and certain business processes. We are
primarily affected by fluctuations in the U.S. Dollar as compared to the Euro as a significant amount of our international transactions and
settlements with international agents are conducted in the Euro. Our foreign currency exposure is naturally limited by the fact that foreign
currency denominated assets and liabilities are generally very short-term in nature. We primarily utilize forward contracts with maturities
of less than thirty days to hedge our balance sheet exposure to fluctuations in exchange rates. By policy, we do not speculate in foreign
currencies and we promptly buy and sell foreign currencies as necessary to cover our net payables and receivables which are denominated
in foreign currencies. The forward contracts are recorded on the Consolidated Balance Sheets. The net effect of changes in exchange rates
and the related forward contracts was not significant for 2008.
The operating expenses of our international subsidiaries are substantially denominated in the Euro. The impact of changes in the Euro
exchange rate have historically not been material to our Consolidated Statement of (Loss) Income as the changes in revenue are
substantially offset by changes in operating expenses. As we continue to grow our business internationally, the impact of fluctuations in
the Euro may become material to our operating results. We are currently undergoing an analysis of the various foreign currency exchange
risk mitigation tools available to us and may utilize foreign currency instruments more frequently in the future.
In 2008, the strength of the Euro decreased our consolidated net loss by approximately $4.9 million for 2008. Had the Euro appreciated
relative to the U.S. Dollar by 20 percent over actual exchange rates for 2008, pre-tax operating income would have increased $2.2 million
for the year. Had the Euro depreciated by 20 percent under actual rates for 2008, pre-tax operating income would have decreased
$7.0 million for the year. This sensitivity analysis considers both the impact on translation of our foreign denominated revenue and
expense streams and the impact on our hedging program.
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