eBay 2013 Annual Report Download - page 86

Interest Rate Risk
The primary objective of our investment activities is to preserve principal while at the same time improving yields without significantly
increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and short-term and long-term investments in a variety of
asset types, which may include bank deposits, certificates of deposit, money market funds, government bonds, and corporate debt securities. As
of December 31, 2013 , approximately 32%
of our total cash and investment portfolio was held in cash and cash equivalents. As such, changes in
interest rates will impact interest income. As discussed below, fixed rate securities may have their fair market value adversely affected due to a
rise in interest rates, and we may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in
interest rates. Additionally, changes in interest rates will impact interest expense on borrowings under our revolving credit facility, which bear
interest at floating rates, and the interest rate on any commercial paper borrowings we make and on any debt securities we issue in the future and,
accordingly, will impact interest expense or cost of net revenues (or both).
As of December 31, 2013 , we held no direct investments in auction rate securities, collateralized debt obligations, structured investment
vehicles or mortgage-backed securities. For additional details related to our investment activities, please see "Note 6 - Investments" to the
consolidated financial statements included in this report.
Investments in both fixed-rate and floating-rate interest-earning instruments carry varying degrees of interest rate risk. The fair market
value of our fixed-rate investment securities may be adversely impacted due to a rise in interest rates. In general, fixed-
rate securities with longer
maturities are subject to greater interest-rate risk than those with shorter maturities. While floating rate securities generally are subject to less
interest-rate risk than fixed-rate securities, floating-rate securities may produce less income than expected if interest rates decrease and may also
suffer a decline in market value if interest rates increase. Due in part to these factors, our investment income may fall short of expectations or we
may suffer losses in principal if securities are sold that have declined in market value due to changes in interest rates. As of December 31, 2013 ,
the balance of our government bond and corporate debt security portfolio was $8.3 billion , which represented approximately 59% of our total
cash and investment portfolio. As of December 31, 2013 , our government bond and corporate debt security portfolio earned an average pretax
yield of approximately
1.27% , with a weighted average maturity of 21 months. If interest rates at the end of the year were 100 basis points
higher (lower), the fair market value of our total fixed-income investment portfolio as of December 31, 2013 could have decreased (increased)
by approximately $113 million .
Investment Risk
As of December 31, 2013 , our cost and equity method investments totaled $269 million , which represented approximately 2%
of our total
cash and investment portfolio and were primarily related to equity method investments in privately held companies. We review our investments
for impairment when events and circumstances indicate a decline in fair value of such assets below carrying value is other-than-temporary. Our
analysis includes a review of recent operating results and trends, recent sales/acquisitions of the securities in which we have invested and other
publicly available data. During 2013, we did not record any material impairment on our cost or equity method investments.
Equity Price Risk
We are exposed to equity price risk on marketable equity instruments due to market volatility. At December 31, 2013 , the total fair value
of our marketable equity instruments (primarily related to our equity holdings in MercadoLibre) was $893 million , which represented
approximately 6% of our total cash and investment portfolio.
European Debt Exposures
We actively monitor our exposure to the European markets, including the impact of sovereign debt issues associated with Greece, Ireland,
Portugal, Italy and Spain. As of December 31, 2013 , we did not have any direct investments in the sovereign debt, of these countries or in debt
securities issued by corporations or financial institutions organized in these countries. We maintain a small number of operating bank accounts
with Spanish, Italian and Portuguese banks that have balances that we do not consider material.
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