Apple 2010 Annual Report Download - page 47

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Table of Contents
However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to
immateriality, accounting considerations and the prohibitive economic cost of hedging particular exposures.
To provide a meaningful assessment of the foreign currency risk associated with certain of the Company’
s foreign currency derivative positions,
the Company performed a sensitivity analysis using a value-at-risk (“VAR”)
model to assess the potential impact of fluctuations in exchange
rates. The VAR model consisted of using a Monte Carlo simulation to generate thousands of random market price paths. The VAR is the
maximum expected loss in fair value, for a given confidence interval, to the Company’
s foreign exchange portfolio due to adverse movements in
rates. The VAR model is not intended to represent actual losses but is used as a risk estimation and management tool. The model assumes
normal market conditions. Forecasted transactions, firm commitments, and assets and liabilities denominated in foreign currencies were
excluded from the model. Based on the results of the model, the Company estimates with 95% confidence a maximum one-
day loss in fair value
of $103 million as of September 25, 2010 compared to a maximum one-
day loss in fair value of $44 million as of September 26, 2009. Because
the Company uses foreign currency instruments for hedging purposes, losses incurred on those instruments are generally offset by increases in
the fair value of the underlying exposures.
Actual future gains and losses associated with the Company’
s investment portfolio and derivative positions may differ materially from the
sensitivity analyses performed as of September 25, 2010 due to the inherent limitations associated with predicting the changes in the timing and
amount of interest rates, foreign currency exchanges rates and the Company’s actual exposures and positions.
44