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These excerpts taken from the GIS 10-K filed Jul 11, 2008. VALUE
AT RISK
The estimates in the table below are intended to measure the
maximum potential fair value we could lose in one day from
adverse changes in market interest rates, foreign exchange
rates, commodity prices, and equity prices under normal market
conditions. A Monte Carlo
value-at-risk
(VAR) methodology was used to quantify the market risk for our
exposures. The models assumed normal market conditions and used
a 95 percent confidence level.
The VAR calculation used historical interest rates, foreign
exchange rates, and commodity and equity prices from the past
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year to estimate the potential volatility and correlation of
these rates in the future. The market data were drawn from the
RiskMetricstm
data set. The calculations are not intended to represent actual
losses in fair value that we expect to incur. Further, since the
hedging instrument (the derivative) inversely correlates with
the underlying exposure, we would expect that any loss or gain
in the fair value of our derivatives would be generally offset
by an increase or decrease in the fair value of the underlying
exposures. The positions included in the calculations were:
debt; investments; interest rate swaps; foreign exchange
forwards; commodity swaps, futures and options; and equity
instruments. The calculations do not include the underlying
foreign exchange and commodities-related positions that are
hedged by these market-risk-sensitive instruments.
The table below presents the estimated maximum potential VAR
arising from a
one-day loss
in fair value for our interest rate, foreign currency,
commodity, and equity market-risk-sensitive instruments
outstanding as of May 25, 2008, and May 27, 2007, and
the average fair value impact during the year ended May 25,
2008.
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VALUE AT RISK The estimates in the table below are intended to measure the maximum potential fair value we could lose in one day from adverse changes in market interest rates, foreign exchange rates, commodity prices, and equity prices under normal market conditions. A Monte Carlo value-at-risk (VAR) methodology was used to quantify the market risk for our exposures. The models assumed normal market conditions and used a 95 percent confidence level. The VAR calculation used historical interest rates, foreign exchange rates, and commodity and equity prices from the past
Table of Contentsyear to estimate the potential volatility and correlation of these rates in the future. The market data were drawn from the RiskMetricstm data set. The calculations are not intended to represent actual losses in fair value that we expect to incur. Further, since the hedging instrument (the derivative) inversely correlates with the underlying exposure, we would expect that any loss or gain in the fair value of our derivatives would be generally offset by an increase or decrease in the fair value of the underlying exposures. The positions included in the calculations were: debt; investments; interest rate swaps; foreign exchange forwards; commodity swaps, futures and options; and equity instruments. The calculations do not include the underlying foreign exchange and commodities-related positions that are hedged by these market-risk-sensitive instruments. The table below presents the estimated maximum potential VAR arising from a one-day loss in fair value for our interest rate, foreign currency, commodity, and equity market-risk-sensitive instruments outstanding as of May 25, 2008, and May 27, 2007, and the average fair value impact during the year ended May 25, 2008.
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