Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
In addition to the risks inherent in our operations, we are exposed to certain market risks, including changes in interest rates, currency exchange rates and the fair values of certain equity and equity method investments measured on a recurring basis.
The analysis presented below for each of our market risk sensitive instruments is based on a hypothetical scenario used to calibrate potential risk and does not represent our view of future market changes. The effect of a change in a particular assumption is calculated without adjusting any other assumption. In reality, however, a change in one factor could cause a change in another, which may magnify or negate other sensitivities.
Interest Rate Risk
We are exposed to changes in interest rates as a result of our short-term borrowings and long-term debt. We hedge a portion of our interest rate risk by managing the mix of fixed and variable rate debt and by entering into interest rate swaps. For fiscal 2024, the net fair value of our interest rate swaps increased $35 million primarily due to fluctuations in market interest rates.
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The table below provides information about our financial instruments that are sensitive to changes in interest rates. For long-term debt, the table represents the principal cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swaps, the table represents the contractual cash flows and weighted-average interest rates by the contractual maturity date, unless otherwise noted. The notional amounts are used to calculate contractual cash flows to be exchanged under the contracts. The weighted-average variable rates are based upon prevailing market rates as of January 31, 2024.
Expected Maturity Date
(Amounts in millions) Fiscal 2025 Fiscal 2026 Fiscal 2027 Fiscal 2028 Fiscal 2029 Thereafter Total
Liabilities
Short-term borrowings:
Variable rate $ 878 $ — $ — $ — $ — $ — $ 878
Weighted-average interest rate 7.7 % — % — % — % — % — % 7.7 %
Long-term debt (1) :
Fixed rate $ 3,447 $ 2,600 $ 3,483 $ 1,760 $ 3,458 $ 24,831 $ 39,579
Weighted-average interest rate 3.0 % 3.8 % 2.5 % 3.6 % 3.0 % 4.5 % 3.9 %
Interest rate derivatives
Interest rate swaps:
Fixed to variable $ 1,500 $ — $ — $ — $ 1,250 $ 3,521 $ 6,271
Weighted-average pay rate 6.7 % — % — % — % 5.7 % 6.9 % 6.6 %
Weighted-average receive rate 3.3 % — % — % — % 1.5 % 2.9 % 2.7 %
(1) Includes deferred loan costs, discounts, fair value hedges, foreign-held debt and secured debt.
As of January 31, 2024, our variable rate borrowings, including the effect of our commercial paper and interest rate swaps, represented 18% of our total short-term and long-term debt. Based on January 31, 2024 debt levels, a 100 basis point change in prevailing market rates would cause our annual interest costs to change by approximately $0.1 billion.
Foreign Currency Risk
We are exposed to fluctuations in currency exchange rates as a result of our investments and operations in countries other than the U.S., as well as our foreign-currency-denominated long-term debt. For fiscal 2024, movements in currency exchange rates and the related impact on the translation of the balance sheets resulted in the $0.3 billion net gain in the currency translation and other category of accumulated other comprehensive loss.
We hedge a portion of our foreign currency risk by entering into currency swaps. The aggregate fair value of these swaps was in a liability position of $1.3 billion and $1.4 billion as of January 31, 2024 and January 31, 2023, respectively. The change in the fair value of these swaps was due to fluctuations in currency exchange rates, primarily due to the strengthening of certain currencies relative to the U.S. dollar in fiscal 2024. The hypothetical result of a uniform 10% weakening in the value of the U.S. dollar relative to other currencies underlying these swaps would have resulted in a change in the value of the swaps of $0.7 billion. A hypothetical 10% change in interest rates underlying these swaps from the market rates in effect as of January 31, 2024 would have resulted in a change in the value of the swaps of $0.1 billion.
In certain countries, we also enter into immaterial foreign currency forward contracts to hedge the purchase and payment of purchase commitments denominated in non-functional currencies.
Investment Risk
We are exposed to investment risk primarily related to changes in the fair value of certain equity investments, including certain immaterial equity method investments where we have elected the fair value option, measured on a recurring basis. The amounts of gains and losses included in earnings from fair value changes for these investments are recorded within other gains and losses and resulted in a net loss of $3.8 billion in fiscal 2024 primarily due to net decreases in the underlying stock prices of these investments. As of January 31, 2024, the fair value of our equity investments, including certain equity method investments, measured on a recurring basis was $7.2 billion. As of January 31, 2024, a hypothetical 10% change in the stock price of such investments would have changed the fair value of such investments by approximately $0.7 billion.
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