MoneyGram 2009 Annual Report Download - page 58

Table of Contents
environment for "Investment commissions expense." The following table summarizes the changes to affected components of the income
statement under various scenarios.
Basis Point Change in Interest Rates
Down Down Down Up Up Up
(Amounts in thousands) 200 100 50 50 100 200
Interest income $ (1,666) $ (1,666) $ (1,666) $ 8,424 $ 16,864 $ 33,795
Percent change (10.4)% (10.4)% (10.4)% 52.7% 105.6% 211.6%
Investment commissions expense NM NM NM $ (359) $ (717) $ (1,435)
Percent change NM NM NM (57.5)% (114.9)% (230.0)%
Interest expense $ 263 $ 263 $ 263 $ (569) $ (1,138) $ (2,276)
Percent change 0.3% 0.3% 0.3% (0.6)% (1.3)% (2.5)%
Pre-tax loss from continuing operations NM NM NM $ 7,496 $ 15,008 $ 30,084
Percent change NM NM NM 10.0% 20.1% 40.2%
Foreign Currency Risk
We are exposed to foreign currency risk in the ordinary course of business given we offer our products and services through a network of
agents and financial institutions with locations in approximately 190 countries and have subsidiaries in 11 countries. This risk may have
an adverse effect on our earnings and equity, so we hedge material transactional exposures when feasible using forward or option
contracts. Translation risk, generated from consolidation of foreign currency-denominated earnings into United States dollars for
reporting purposes, is not hedged as this is not considered an economic exposure. In 2009, the decline of the euro exchange rate (net of
hedging activities) resulted in a net benefit to our operating results of $1.6 million over 2008. Additionally, by policy, we do not
speculate in foreign currencies; all currency trades relate to underlying transactional exposures.
Our primary source of transactional currency risk is the money transfer business whereby funds are frequently transferred cross-border
and we settle with agents in multiple currencies. Although this risk is somewhat limited due to the fact that these transactions are short-
term in nature, we currently manage some of this risk with forward contracts to protect against potential short-term market volatility.
Additionally, we buy and sell in the spot market daily to settle transactions. The primary currency pairs traded against the dollar in the
spot and forward markets, based on volume, include the European euro, Mexican peso, British pound and Indian rupee. The duration of
forward contracts is typically less than one month.
Realized and unrealized gains or losses on hedges and any associated revaluation of balance sheet exposures are recorded in "Transaction
and operations support" in the Consolidated Statement of Loss. The fair market value of any open hedges at period end are recorded in
"Other assets" in the Consolidated Balance Sheets. The net effect of changes in foreign exchange rates and the related forward contracts
for the year ended December 31, 2009 was a loss of $5.3 million. We do not currently have any forward contracts that are designated as
hedges for accounting purposes.
Counterparty risk on currency trades is managed through careful selection and ongoing evaluation of the financial institutions utilized as
counterparties.
Had the euro appreciated/depreciated relative to the United States dollar by 20 percent from actual exchange rates for 2009, pre-tax
operating income would have increased/decreased $11.5 million for the year. This sensitivity analysis does not consider the impact of our
hedging program.
Operational Risk
Operational risk represents the potential for loss resulting from our operations. This may include, but is not limited to the risk of fraud by
employees or external parties, business continuation and disaster recovery, errors related to transaction processing and technology,
unauthorized transactions and breaches of information security and compliance requirements. This risk may also include the potential
legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory
requirements. Management has
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