Boeing 2010 Annual Report Download - page 60

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We have financial instruments that are subject to interest rate risk, principally fixed-rate debt
obligations, and customer financing assets and liabilities. Additionally, BCC uses interest rate swaps
with certain debt obligations to manage exposure to interest rate changes. Exposure to this risk is
managed by generally matching the profile of BCC’s liabilities with that of BCC’s assets in relation to
amount and terms such as expected maturities and fixed versus floating interest rates. As of
December 31, 2010, the impact over the next 12 months of a 100 basis point immediate and sustained
rise in interest rates would be a $5 million increase to BCC’s pre-tax earnings. For purposes of the
foregoing sensitivity analysis, we assume that the level of our floating rate assets and debt (including
the impact of derivatives) remain unchanged from year-end 2010 and that they are all subject to
immediate re-pricing. Historically, we have not experienced material gains or losses on our
investments or customer financing assets and liabilities due to interest rate changes.
Based on the portfolio of other Boeing fixed-rate debt, the unhedged exposure to interest rate risk is
not material. The investors in our fixed-rate debt obligations do not generally have the right to demand
we pay off these obligations prior to maturity. Therefore, exposure to interest rate risk is not believed to
be material for our fixed-rate debt.
Foreign Currency Exchange Rate Risk
We are subject to foreign currency exchange rate risk relating to receipts from customers and
payments to suppliers in foreign currencies. We use foreign currency forward and option contracts to
hedge the price risk associated with firmly committed and forecasted foreign denominated payments
and receipts related to our ongoing business. Foreign currency forward and option contracts are
sensitive to changes in foreign currency exchange rates. At December 31, 2010, a 10% increase in the
exchange rate in our portfolio of foreign currency contracts would have decreased our unrealized gains
by $159 million and a 10% decrease in the exchange rate would have increased our unrealized gains
by $173 million. At December 31, 2009, a 10% increase in the exchange rate in our portfolio of foreign
currency contracts would have decreased our unrealized gains by $136 million and a 10% decrease in
the exchange rate would have increased our unrealized gains by $150 million. Consistent with the use
of these contracts to neutralize the effect of exchange rate fluctuations, such unrealized losses or gains
would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying
transactions being hedged. When taken together, these forward currency contracts and the offsetting
underlying commitments do not create material market risk.
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