We are exposed to financial market risks, including changes in foreign currency exchange rates, interest rates, and equity investment risks. Foreign Currency Exchange Risk We transact business globally in multiple currencies. International revenues, foreign-denominated monetary assets and liabilities, and investments in foreign subsidiaries expose us to the risk of fluctuations in foreign exchange rates against the US dollar. Principal currency exposures include the Australian dollar, British pound, Canadian dollar, Euro, and Japanese yen. 41.
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We monitor our foreign currency exposures and hedge foreign exchange risks with derivative and non-derivative instruments, including forwards, options (including collars), cross-currency swaps, and foreign currency-denominated debt. Gains or losses on these foreign currency exposures are generally offset by corresponding gains or losses on the derivative and non-derivative instruments. Considering historical trends in foreign exchange rates, we determined that it was reasonably possible that adverse changes in exchange rates of 10% could be experienced. We performed a sensitivity analysis on our foreign currency exposures to estimate the potential impact of this adverse 10% change. The estimated effects on our financial position would be as follows (in millions):
As of December 31,
As of December 31, / As of December 31, / As of December 31, / As of December 31, / As of December 31, / As of December 31, / As of December 31, / As of December 31,
Impact / Impact / Impact / 2024 / 2024 / 2024 / 2025 / 2025 / 2025
Foreign currency risk ................... Foreign currency risk / Foreign currency risk
Foreign denominated monetary assets and liabilities (1) ... Foreign denominated monetary assets and liabilities (1) / Foreign denominated monetary assets and liabilities (1) / OI&E / OI&E / OI&E / $ / 135 / $ / 671
Cash flow hedges of foreign currency revenue (2) ... Cash flow hedges of foreign currency revenue (2) / Cash flow hedges of foreign currency revenue (2) / AOCI / AOCI / AOCI / $ / 1,627 / $ / 2,096
Net investment hedges of investments in foreign subsidiaries (3) ... Net investment hedges of investments in foreign subsidiaries (3) / Net investment hedges of investments in foreign subsidiaries (3) / AOCI / AOCI / AOCI / $ / 660 / $ / 2,942
(1) After consideration of the effect of derivative contracts. (2) The change in accumulated other comprehensive income (AOCI) would be expected to offset a corresponding foreign currency change in forecasted hedged revenues when recognized. (3) The change in AOCI would be expected to offset a corresponding foreign currency translation gain or loss from our investments in foreign subsidiaries. Interest Rate Risk We are exposed to interest rate risk related to our investment portfolio and outstanding debt. Our Corporate Treasury investment strategy is to achieve a return that w ill allow us to preserve capital and maintain liquidity. By policy, we limit the amount of credit exposure within our investment portfolio to any one issuer. Our investments in both fixed rate and floating rate interest earning securities carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall. Unrealized gains and losses on our marketable debt securities are primarily due to interest rate fluctuations as compared to interest rates at the time of purchase. For certain fixed and floating rate debt securities, we have elected the fair value option for which changes in fair value are recorded in OI&E. We measure securities for which we have not elected the fair value option at fair value with gains and losses recorded in AOCI until the securities are sold, less any expected credit losses. We use value-at-risk (VaR) analysis to determine the potential effect of fluctuations in interest rates on the value of our investment portfolio. The VaR is the expected loss in fair value, for a given confidence interval, for our investment portfolio due to adverse movements in interest rates. We use a variance/covariance VaR model with 95% confidence interval. The estimated one-day loss in fair value of our investment portfolio as of December 31, 2024 and 2025 are shown below (in millions):
As of December 31,
As of December 31, / As of December 31, / As of December 31, / As of December 31, / As of December 31, / As of December 31, / As of December 31, / As of December 31, / 12-Month Average As of December 31, / 12-Month Average As of December 31, / 12-Month Average As of December 31, / 12-Month Average As of December 31, / 12-Month Average As of December 31, / 12-Month Average As of December 31, / 12-Month Average As of December 31, / 12-Month Average As of December 31, / 12-Month Average As of December 31,
2024 / 2024 / 2024 / 2025 / 2025 / 2025 / 2024 / 2024 / 2024 / 2025 / 2025 / 2025
Risk category - interest rate ........... Risk category - interest rate / Risk category - interest rate / $ / 208 / $ / 162 / $ / 230 / $ / 184
Actual future gains and losses associated with our investment portfolio may differ materially from the sensitivity analyses performed as of December 31, 2024 and 2025 due to the inherent limitations associated with predicting the timing and amount of changes in interest rates and our actual exposures and positions. VaR analysis is not intended to represent actual losses but is used as a risk estimation. Additionally, we had senior unsecured notes outstanding with a total carrying value of $11.9 billion and $48.5 billion as of December 31, 2024 and 2025, respectively. As our senior unsecured notes primarily bear interest at fixed rates and are recorded at amortized cost, interest rate fluctuations generally do not affect our consolidated financial statements. However, the fair value of the notes will fluctuate with movement in market interest rates. Equity Investment Risk Our marketable and non-marketable equity securities are subject to a wide variety of market-related risks that could substantially reduce or increase the fair value of our holdings. 42.
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Our marketable equity securities are primarily publicly traded stocks or funds and our non-marketable equity securities are primarily investments in privately held companies, some of which are in the startup or development stages. We record marketable equity securities at fair value subject to market price volatility. These securities represent $5.1 billion and $6.3 billion of our investments as of December 31, 2024 and 2025, respectively. A hypothetical adverse price change of 10% on our December 31, 2025 balance would decrease the fair value of marketable equity securities by $631 million. From time to time, we may enter into derivatives to hedge the market price risk on certain of our marketable equity securities. Our non-marketable equity securities not accounted for under the equity method are primarily adjusted to fair value for observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). The fair value measured at the time of the observable transaction is not necessarily an indication of the current fair value as of the balance sheet date. These investments, especially those that are in the early stages, are inherently risky because the technologies or products these companies have under development are typically in the early phases and may never materialize, and they may experience a decline in financial condition, which could result in a loss of a substantial part of our investment in these companies. Valuations of our equity investments in private companies are inherently more complex due to the lack of readily available market data and observable transactions at lower valuations could result in significant losses. In addition, global economic conditions could result in additional volatility. The success of our investment in any private company is also typically dependent on the likelihood of our ability to realize appreciation in the value of investments through liquidity events such as public offerings, acquisitions, private sales, or other market events. Changes in the valuation of non-marketable equity securities may not directly correlate with changes in valuation of marketable equity securities. As of December 31, 2024 and 2025, the carrying value of our non-marketable equity securities, which were accounted for under the measurement alternative, was $35.2 billion and $64.1 billion, respectively. The carrying values of our equity method investments, which totaled approximately $2.0 billion and $2.5 billion as of December 31, 2024 and 2025 , respectively, generally do not fluctuate based on market price changes. However, these investments could be impaired if the carrying value exceeds the fair value and is not expected to recover. For additional information about our equity investments, see Note 1 and Note 3 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. 43.
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