National Oilwell Varco 2010 Annual Report Download - page 50

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in foreign currency exchange rates and interest rates. Additional information concerning each of these matters
follows:
Foreign Currency Exchange Rates
We have extensive operations in foreign countries. The net assets and liabilities of these operations are exposed to changes in foreign currency
exchange rates, although such fluctuations generally do not affect income since their functional currency is typically the local currency. These
operations also have net assets and liabilities not denominated in the functional currency, which exposes us to changes in foreign currency
exchange rates that impact income. During the years ended December 31, 2010, 2009 and 2008, the Company reported foreign currency gains
(losses) of ($30) million, ($79) million, and $50 million, respectively. The gains and losses are primarily due to exchange rate fluctuations related
to monetary asset balances denominated in currencies other than the functional currency and adjustments to our hedged positions as a result of
changes in foreign currency exchange rates. Strengthening of currencies against the U.S. dollar may create losses in future periods to the extent
we maintain net assets and liabilities not denominated in the functional currency of the countries using the local currency as their functional
currency.
Some of our revenues in foreign countries are denominated in U.S. dollars, and therefore, changes in foreign currency exchange rates impact our
earnings to the extent that costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly some of our revenues
are denominated in foreign currencies, but have associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure. In
order to mitigate that risk, we may utilize foreign currency forward contracts to better match the currency of our revenues and associated costs.
We do not use foreign currency forward contracts for trading or speculative purposes.
The following table details the Companys foreign currency exchange risk grouped by functional currency and their expected maturity periods as
of December 31, 2010 (in millions except for rates):
As of December 31, 2010 December 31,
Functional Currency 2011 2012 2013 Total 2009
CAD Buy USD/Sell CAD:
Notional amount to buy (in Canadian
dollars) 267   267 291
Average CAD to USD contract rate 1.0072 1.0072 1.0418
Fair Value at December 31, 2010 in U.S.
dollars (1)   (1) 2
Sell USD/Buy CAD:
Notional amount to sell (in Canadian
dollars) 55   55 69
Average CAD to USD contract rate 1.0237 1.0237 1.1109
Fair Value at December 31, 2010 in U.S.
dollars 1   1 4
EUR Buy USD/Sell EUR:
Notional amount to buy (in euros) 1 1 98
Average USD to EUR contract rate 1.3884 1.3884 1.4356
Fair Value at December 31, 2010 in U.S.
dollars  
Sell USD/Buy EUR:
Notional amount to buy (in euros) 68 6 74 91
Average USD to EUR contract rate 1.3110 1.3924 1.3172 1.3896
Fair Value at December 31, 2010 in U.S.
dollars 1   1 4
KRW Sell EUR/Buy KRW:
Notional amount to buy (in South Korean
won) 273   273 5,050
Average KRW to EUR contract rate 1,742.53 1,742.53 1,639.00
Fair Value at December 31, 2010 in U.S.
dollars  
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