Western Union 2015 Annual Report Download - page 187

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks arising from changes in market rates and prices, including changes in foreign currency exchange
rates and interest rates and credit risk related to our agents and customers. A risk management program is in place to manage these
risks.
Foreign Currency Exchange Rates
We provide Consumer-to-Consumer money transfer services in more than 200 countries and territories. We manage foreign
exchange risk through the structure of the business and an active risk management process. We settle with the majority of our
agents in United States dollars or euros. However, in certain circumstances, we settle in other currencies. We typically require the
agent to obtain local currency to pay recipients; thus, we generally are not reliant on international currency markets to obtain and
pay illiquid currencies. The foreign currency exposure that does exist is limited by the fact that the majority of transactions are
paid by the next day after they are initiated. To mitigate this risk further, we enter into short duration foreign currency forward
contracts, generally with maturities from a few days up to one month, to offset foreign exchange rate fluctuations between transaction
initiation and settlement. We also have exposure to certain foreign currency denominated cash and other asset and liability positions
and may utilize foreign currency forward contracts, typically with maturities of less than one year at inception, to offset foreign
exchange rate fluctuations on these positions. In certain consumer money transfer, bill payment and Business Solutions transactions
involving different send and receive currencies, we generate revenue based on the difference between the exchange rate set by us
to the consumer or business and the rate at which we or our agents are able to acquire the currency, helping to provide protection
against currency fluctuations. We attempt to promptly buy and sell foreign currencies as necessary to cover our net payables and
receivables which are denominated in foreign currencies.
We use longer-term foreign currency forward contracts to help mitigate risks associated with changes in foreign currency
exchange rates on Consumer-to-Consumer revenues denominated primarily in the euro, and to a lesser degree the Canadian dollar,
British pound, Australian dollar, Swiss franc, and other currencies. We use contracts with maturities of up to 36 months at inception
to mitigate some of the impact that changes in foreign currency exchange rates could have on forecasted revenues, with a targeted
weighted-average maturity of approximately one year. We believe the use of longer-term foreign currency forward contracts
provides predictability of future cash flows from our international Consumer-to-Consumer operations.
We have additional foreign exchange risk and associated foreign exchange risk management requirements due to the nature
of our Business Solutions business. The majority of this business' revenue is from exchanges of currency at spot rates, which
enable customers to make cross-currency payments. In certain countries, this business also writes foreign currency forward and
option contracts for our customers to facilitate future payments. The duration of these derivative contracts at inception is generally
less than one year. Business Solutions aggregates its foreign exchange exposures arising from customer contracts, including the
derivative contracts described above, and hedges the resulting net currency risks by entering into offsetting contracts with
established financial institution counterparties.
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