Apple 2012 Annual Report Download - page 42

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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 assuming normal market
conditions. The VAR is the maximum expected loss in fair value, for a given confidence interval, to the
Company’s foreign currency derivative positions 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 $200 million as of September 29, 2012 compared to a
maximum one-day loss in fair value of $161 million as of September 24, 2011. Because the Company uses
foreign currency instruments for hedging purposes, the loss in fair value 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 29, 2012 due to the inherent limitations
associated with predicting the timing and amount of changes in interest rates, foreign currency exchanges rates
and the Company’s actual exposures and positions.
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