1. Financial Risk
Management by
Verizon
SAURABH BARNWAL,
Date – 01/01/2013 MPE 4TH BATCH, NMIMS

2. Market Risk
Verizon is exposed to various types of market risk in the normal
course of business, including the impact of interest rate
changes, foreign currency exchange rate fluctuations, changes in
investment, equity and commodity prices and changes in
corporate tax rates. Verizon employ risk management
strategies, which may include the use of a variety of derivatives
including cross currency swaps, foreign currency and prepaid
forwards and collars, interest rate and commodity swap
agreements and interest rate locks. Verizon do not hold derivatives
for trading purposes.

3. Interest Rate Risk
Verizon is exposed to changes in interest rates, primarily on its
short-term debt and the portion of long-term debt that carries
floating interest rates. The impact of a 100 basis point change in
interest rates affecting Verizon’s floating rate debt would result in
a change in annual interest expense, including Verizon’s interest
rate swap agreements that are designated as hedges, of
approximately $0.1 billion. The interest rates on Verizon’s existing
long-term debt obligations are unaffected by changes to its
credit ratings.

4. Sensitivity analysis of the estimated
fair values
Fair Value Fair Value
Fair Value assuming +100 assuming -100
basis point shift basis point shift
Long-term debt
At December 31,
and related $ 61,870 $ 58,117 $ 66,326
2011
derivatives
Long-term debt
At December 31,
and related $ 58,591 $ 55,427 $ 62,247
2010
derivatives

5. Interest Rate Swaps
Verizon have entered into domestic interest rate swaps to achieve a
targeted mix of fixed and variable rate debt. Verizon principally receive fixed
rates and pay variable rates based on LIBOR, resulting in a net increase or
decrease to Interest expense. These swaps are designated as fair value
hedges and hedge against changes in the fair value of our debt portfolio.
Verizon record the interest rate swaps at fair value on its consolidated
balance sheets as assets and liabilities. Changes in the fair value of the
interest rate swaps due to changes in interest rates are recorded to Interest
expense, which are offset by changes in the fair value of the debt. The fair
value of these contracts was $0.6 billion at December 31, 2011 and $0.3
billion at December 31, 2010 and is primarily included in Other assets and
Long-term debt. As of December 31, 2011, the total notional amount of these
interest rate swaps was $7.0 billion.

6. Foreign Currency Translation
The functional currency of Verizon’s foreign operations is primarily the local
currency. The translation of income statement and balance sheet amounts
of Verizon’s foreign operations into U.S. dollars is recorded as cumulative
translation adjustments, which are included in Accumulated other
comprehensive loss in Verizon’s consolidated balance sheets. Gains and
losses on foreign currency transactions are recorded in the consolidated
statements of income in Other income and (expense), net. At December 31,
2011, Verizon’s primary translation exposure was to the British Pound Sterling,
the Euro and the Australian Dollar.

7. Cross Currency Swaps
During 2008, Verizon Wireless entered into cross currency swaps designated as
cash flow hedges to exchange approximately $2.4 billion of British Pound
Sterling and Euro-denominated debt into U.S. dollars and to fix its future
interest and principal payments in U.S. dollars, as well as mitigate the impact
of foreign currency transaction gains or losses. During December 2011,
Verizon repaid $0.9 billion upon maturity for the €0.7 billion of 7.625% Verizon
Wireless Notes. The settlement of the related cross currency swap did not
have a material impact on our financial statements. The fair value of the
outstanding swaps, primarily included in Other assets, was approximately $0.1
billion at December 31, 2011 and December 31, 2010, respectively.

8. Thanks You