Visa 2008 Annual Report Download - page 94

Table of Contents
Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential economic loss arising from changes in market factors. We believe we are exposed to four significant market risks that could
affect our business including: changes in foreign currency rates, interest rates and equity prices. We do not hold or enter into derivatives or other financial
instruments for trading or speculative purposes. Aggregate risk exposures are monitored on an ongoing basis, and cash and cash equivalents are not
considered to be subject to significant interest rate risk due to the short period of time to maturity.
Recent U.S. sub-prime mortgage defaults have had a significant impact across various sectors of the financial markets, causing global credit and
liquidity issues. If the global credit market continues to deteriorate, our investment portfolio may be impacted and we could determine some of our
investments are impaired, which could adversely impact our financial results. We have policies and procedures that limit the amount of credit exposure to any
one financial institution or type of investment instrument.
Foreign Currency Exchange Rate Risk
Our business is conducted globally. Although most of our activities are transacted in U.S. dollars, we are exposed to adverse movements in foreign
currency exchange rates. Risks from foreign currency exchange rate fluctuations are related primarily to adverse changes in the dollar value of revenues that
are derived from foreign currency-denominated transactions, and to adverse changes in the dollar value of payments in foreign currencies, primarily for costs
and expenses at our non-U.S. locations.
These risks are managed by utilizing derivative foreign currency forward and option contracts, which we refer to as foreign currency contracts. Foreign
currency contracts are primarily designated as hedges of operational cash flow exposures which result from changes in foreign currency exchange rates. At
September 30, 2008, the currency underlying the foreign currency contracts consists of the British pound sterling. Prior to the reorganization, Visa U.S.A. did
not engage in foreign currency hedges. Our foreign currency exchange rate risk management program reduces, but does not entirely eliminate, the impact of
foreign currency exchange rate movements.
We are also subject to foreign currency exchange risk in daily settlement activities. This risk arises from the timing of rate setting for settlement with
customers relative to the timing of market trades for balancing currency positions. The foreign currency exchange risk in settlement activities is limited
through daily operating procedures, including the utilization of Visa settlement systems and our interaction with foreign exchange trading counterparties.
Interest Rate Risk
Our investment portfolio assets are held in both fixed-rate and adjustable-rate securities. These assets are included in cash equivalents, short-term
available-for-sale investments and long-term available-for-sale investments. We do not consider investment securities which are classified as cash and cash
equivalents to be subject to significant market risks from a fair value perspective, as amounts consist of liquid investments with original maturities of three
months or less. Investments in fixed rate instruments carry a degree of interest rate risk. The fair value of fixed rate securities may be adversely impacted due
to a rise in interest rates. Additionally, a falling rate environment creates reinvestment risk because as securities mature the proceeds are reinvested at a lower
rate, generating less interest income. Because we have historically had the ability to hold investments until maturity, operating results or cash flows have not
been, and are not expected to be, materially impacted by a sudden change in market interest rates.
93