Canon 2013 Annual Report Download - page 47

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FINANCIAL OVERVIEW 45
MARKET RISK EXPOSURES
Canon is exposed to market risks, including changes in for-
eign currency exchange rates, interest rates and prices of mar-
ketable securities and investments. In order to hedge the risks
of changes in foreign currency exchange rates, Canon uses
derivative financial instruments.
Equity price risk
Canon holds marketable securities included in current assets,
which consist generally of highly-liquid and low-risk instru-
ments. Investments included in noncurrent assets are held as
long-term investments. Canon does not hold marketable secu-
rities and investments for trading purposes.
Millions of yen Thousands of U.S. dollars
Available-for-sale securities Cost Fair value Cost Fair value
Debt securities
Due within one year ¥— ¥— $ —$ —
Due after one year through five years 10 10 95 95
Due after five years 819 778 7,800 7,409
Fund trusts 68 68 648 648
Equity securities 18,112 34,536 172,495 328,915
¥19,009 ¥35,392 $ 181,038 $ 337,067
Maturities and fair values of such marketable securities and investments with original maturities of more than three
months, all of which were classified as available-for-sale securities, were as follows at December 31, 2013.
Foreign currency exchange rate and
interest rate risk
Canon operates internationally, exposing it to the risk of
changes in foreign currency exchange rates. Derivative
financial instruments are comprised principally of foreign
currency exchange contracts utilized by the Company and
certain of its subsidiaries to reduce the risk. Canon assesses
foreign currency exchange rate risk by continually moni-
toring changes in the exposures and by evaluating hedging
opportunities. Canon does not hold or issue derivative finan-
cial instruments for trading purposes. Canon is also exposed
to credit-related losses in the event of non-performance by
counterparties to derivative financial instruments, but it is
not expected that any counterparties will fail to meet their
obligations. Most of the counterparties are internationally
recognized financial institutions and selected by Canon tak-
ing into account their financial condition, and contracts are
diversified across a number of major financial institutions.
Canon’s international operations expose Canon to the risk
of changes in foreign currency exchange rates. Canon uses
foreign exchange contracts to manage certain foreign cur-
rency exchange exposures principally from the exchange
of U.S. dollars and euros into Japanese yen. These contracts
are primarily used to hedge the foreign currency exposure
of forecasted intercompany sales and intercompany trade
receivables which are denominated in foreign currencies. In
accordance with Canon’s policy, a specific portion of foreign
currency exposure resulting from forecasted intercompany
sales are hedged using foreign exchange contracts which
principally mature within three months.
Thousands of U.S. dollars U.S.$ Euro Others Total
Forwards to sell foreign currencies:
Contract amounts $1,886,086 $1,406,943 $275,533 $3,568,562
Estimated fair value (69,514) (64,714) (5,696) (139,924)
Forwards to buy foreign currencies:
Contract amounts $ 388,991 $ 36,971 $ — $ 425,962
Estimated fair value (257) 267 — 10
Millions of yen U.S.$ Euro Others Total
Forwards to sell foreign currencies:
Contract amounts ¥198,039 ¥147,729 ¥28,931 ¥374,699
Estimated fair value (7,299) (6,795) (598) (14,692)
Forwards to buy foreign currencies:
Contract amounts ¥ 40,844 ¥ 3,882 ¥ — ¥ 44,726
Estimated fair value (27) 28 — 1
The following table provides information about Canon’s major derivative financial instruments related to foreign currency
exchange transactions existing at December 31, 2013. All of the foreign exchange contracts described in the following table
have a contractual maturity date in 2014.