Facebook 2013 Annual Report Download - page 58

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56
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, including changes to foreign currency exchange rates, interest rates, and inflation.
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar,
primarily the Euro. In general, we are a net receiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and
in particular a strengthening of the U.S. dollar, will negatively affect our revenue and other operating results as expressed in U.S. dollars.
We have experienced and will continue to experience fluctuations in our net income as a result of transaction gains or losses related
to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of
the entities in which they are recorded. At this time we have not entered into, but in the future we may enter into, derivatives or other
financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the effect hedging activities would
have on our results of operations. We recognized foreign currency losses of $14 million, $9 million, and $29 million in 2013, 2012, and
2011, respectively.
Interest Rate Sensitivity
Our exposure to changes in interest rates relates primarily to interest earned and market value on our cash and cash equivalents
and marketable securities.
Our cash and cash equivalents and marketable securities consist of cash, certificates of deposit, time deposits, money market funds,
and U.S. government and U.S. government agency securities. Our investment policy and strategy are focused on preservation of capital
and supporting our liquidity requirements. Changes in U.S. interest rates affect the interest earned on our cash and cash equivalents and
marketable securities and the market value of those securities. A hypothetical 100 basis point increase in interest rates would result in a
decrease of approximately $73 million and $55 million in the market value of our available-for-sale debt securities as of December 31,
2013 and December 31, 2012, respectively. Any realized gains or losses resulting from such interest rate changes would only occur if we
sold the investments prior to maturity.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition, or results of operations.