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Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as interest rates, foreign currency exchange rates, and equity investment risk.
−Removed: Management establishes and oversees the implementation of policies governing our investing, funding, and foreign currency derivative activities in order to mitigate market risks.
+Added: Management establishes and oversees the implementation of policies governing our investing, funding, and foreign currency derivative activities intended to mitigate market risks.
We monitor risk exposures on an ongoing basis.
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We are exposed to interest-rate risk relating to our investment portfolio and from interest-rate sensitive assets underlying the customer balances we hold on our condensed consolidated balance sheets as customer accounts.
−Removed: As of September 30, 2021 and December 31, 2020, approximately 47% and 30%, respectively, of our total cash, cash equivalents, and investment portfolio (excluding restricted cash and strategic investments) was held in cash and cash equivalents.
+Added: As of March 31, 2022 and December 31, 2021, approximately 41% and 40%, respectively, of our total cash, cash equivalents, and investment portfolio (excluding restricted cash and strategic investments) was held in cash and cash equivalents.
The assets underlying the customer balances that we hold on our condensed consolidated balance sheets as customer accounts are maintained in interest and non-interest bearing bank deposits, time deposits, and available-for-sale debt securities.
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We do not pay interest on amounts due to customers.
−Removed: If interest rates increased by 100 basis points, the fair value of our available-for-sale debt securities investment portfolio would have decreased by approximately $243 million and $173 million at September 30, 2021 and December 31, 2020, respectively.
−Removed: We have $9.0 billion in fixed rate debt with varying maturity dates.
+Added: If interest rates increased by 100 basis points, the fair value of our available-for-sale debt securities investment portfolio would have decreased by approximately $284 million and $272 million at March 31, 2022 and December 31, 2021, respectively.
+Added: Changes in the fair value of our available-for-sale debt securities resulting from such interest rate changes are reported as a component of accumulated other comprehensive income (“AOCI”) and are realized only if we sell the securities prior to their scheduled maturities or the declines in fair values are due to expected credit loss.
+Added: As of March 31, 2022 and December 31, 2021, we had $9.0 billion in fixed rate debt with varying maturity dates.
Since these notes bear interest at fixed rates, they do not result in any financial statement risk associated with changes in interest rates.
−Removed: However, the fair value of these notes fluctuates when interest rates change.
−Removed: We also have a committed revolving credit facility of $5.0 billion available to us.
−Removed: We are obligated to pay interest on borrowings under this facility as well as other customary fees, including an upfront fee and an unused commitment fee based on our debt rating.
−Removed: Borrowings under this facility, if any, bear interest at floating rates.
+Added: However, the fair value of these notes fluctuates when interest rates change, increasing in periods of declining interest rates and declining in periods of increasing interest rates.
+Added: As of March 31, 2022 and December 31, 2021, we also had revolving credit facilities of approximately $5.5 billion and $5.2 billion, respectively, available to us.
+Added: We are obligated to pay interest on borrowings under these facilities as well as other customary fees, including an upfront fee and an unused commitment fee based on our debt rating.
+Added: Borrowings under these facilities, if any, bear interest at floating rates.
As a result, we are exposed to the risk related to fluctuations in interest rate to the extent of our borrowings.
−Removed: As of both September 30, 2021 and December 31, 2020, we had no amount outstanding under this credit facility.
+Added: As of March 31, 2022 and December 31, 2021, we had ¥32.8 billion (approximately $269 million) and ¥11.3 billion (approximately $98 million), respectively, outstanding under these credit facilities.
+Added: A 100 basis points hypothetical adverse change in applicable market interest rates would not have resulted in a material impact to interest expense recorded in the period.
For additional information, see “Note 12—Debt” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.
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Our cash flows, results of operations, and certain of our intercompany balances that are exposed to foreign currency exchange rate fluctuations may differ materially from expectations, and we may record significant gains or losses due to foreign currency fluctuations and related hedging activities.
−Removed: We are generally a net receiver of foreign currencies and therefore benefit from a weakening of the U.S.
−Removed: dollar, and are adversely affected by a strengthening of the U.S.
+Added: We are generally a net receiver of foreign currencies and therefore benefit from a weakening of the United States (“U.S.”) dollar, and are adversely affected by a strengthening of the U.S.
dollar, relative to foreign currencies.
+Added: We considered the historical trends in foreign currency exchange rates and determined that it was reasonably possible that changes in exchange rates of 10% for all currencies could be experienced in the near term.
We have a foreign currency exchange exposure management program designed to identify material foreign currency exposures, manage these exposures, and reduce the potential effects of currency fluctuations on our consolidated cash flows and results of operations through the execution of foreign currency exchange contracts.
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These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign currency exchange rate movements.
−Removed: We designate these contracts as cash flow and net investment hedges for accounting purposes.
−Removed: The derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”).
−Removed: Cash flow hedges are subsequently reclassified into the financial statement line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings.
−Removed: The accumulated gains and losses associated with the net investment hedge will remain in AOCI until the foreign subsidiary is sold or substantially liquidated, at which point they will be reclassified into earnings.
−Removed: We considered the historical trends in foreign currency exchange rates and determined that it was reasonably possible that changes in exchange rates of 20% for all currencies could be experienced in the near term.
−Removed: dollar weakened by 20% at September 30, 2021 and December 31, 2020, the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately $1.0 billion and $1.1 billion lower, respectively.
−Removed: dollar strengthened by 20% at September 30, 2021 and December 31, 2020, the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately $1.0 billion and $1.1 billion higher, respectively.
+Added: We designate these contracts as cash flow hedges of forecasted revenues denominated in foreign currencies and net investment hedges for accounting purposes.
+Added: The derivative’s gain or loss is initially reported as a component of AOCI.
+Added: Cash flow hedges are subsequently reclassified into revenue in the same period the forecasted transaction affects earnings.
+Added: The accumulated gains and losses associated with net investment hedges will remain in AOCI until the foreign subsidiaries are sold or substantially liquidated, at which point they will be reclassified into earnings.
+Added: dollar weakened by 10% at March 31, 2022 and December 31, 2021, the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately $696 million and $512 million lower, respectively, before considering the offsetting impact of the underlying hedged item.
We have an additional foreign currency exchange management program in which we use foreign currency exchange contracts to offset the foreign currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries.
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The foreign currency exchange gains and losses on our assets and liabilities are recorded in other income (expense), net, and are offset by the gains and losses on the foreign currency exchange contracts.
−Removed: Adverse changes in exchange rates of 20% for all currencies would have resulted in an adverse impact on income before income taxes of approximately $952 million and $353 million at September 30, 2021 and December 31, 2020, respectively, without considering the offsetting effect of foreign currency exchange contracts.
−Removed: Foreign currency exchange contracts in place as of September 30, 2021 would have positively impacted income before income taxes by approximately $1.0 billion, resulting in a net positive impact of approximately $49 million.
+Added: Adverse changes in exchange rates of 10% for all currencies would have resulted in an adverse impact on income before income taxes of approximately $184 million and $196 million at March 31, 2022 and December 31, 2021, respectively, without considering the offsetting effect of foreign currency exchange contracts.
+Added: Foreign currency exchange contracts in place as of March 31, 2022 would have positively impacted income before income taxes by approximately $191 million, resulting in a net positive impact of approximately $7 million.
Foreign currency exchange contracts in place as of December 31, 2021 would have positively impacted income before income taxes by approximately $203 million, resulting in a net positive impact of approximately $7 million.
−Removed: These reasonably possible adverse changes in exchange rates of 20% were applied to total monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries at the balance sheet dates to compute the adverse impact these changes would have had on our income before income taxes in the near term.
+Added: These reasonably possible adverse changes in exchange rates of 10% were applied to monetary assets, monetary liabilities, and available-for-sale debt securities denominated in currencies other than the functional currencies of our subsidiaries at the balance sheet dates to compute the adverse impact these changes would have had on our income before income taxes in the near term.
EQUITY INVESTMENT RISK
Our strategic investments are subject to a variety of market-related risks that could substantially reduce or increase the carrying value of the portfolio.
−Removed: As of September 30, 2021 and December 31, 2020, our strategic investments totaled $3.5 billion and $3.2 billion, respectively, which represented approximately 17% of our total cash, cash equivalents, and investment portfolio at each of those respective dates.
+Added: As of both March 31, 2022 and December 31, 2021, our strategic investments totaled $3.2 billion, which represented approximately 21% and 20% of our total cash, cash equivalents, and short-term and long-term investment portfolio at each of those respective dates.
Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies.
2 unchanged sentences
These changes could be material based on market conditions.
−Removed: A hypothetical adverse change of 10% in the carrying value of our strategic investments as of September 30, 2021, which could be experienced in the near term, would have resulted in a decrease of approximately $348 million to the carrying value of the portfolio.
+Added: Additionally, the financial success of our investments in privately held companies is typically dependent on a liquidity event, such as a public offering, acquisition, private sale, or other favorable market event providing the ability to realize appreciation in the value of the investment.
+Added: A hypothetical adverse change of 10% in the carrying value of our strategic investments as of March 31, 2022, which could be experienced in the near term, would have resulted in a decrease of approximately $319 million to the carrying value of the portfolio.
We review our non-marketable equity investments accounted for under the Measurement Alternative for impairment when events and circumstances indicate a decline in fair value of such assets below carrying value.
1 unchanged sentence
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.