We are exposed to financial market risks, primarily changes in currency exchange rates, interest rates, and equity prices. We use derivative financial instruments primarily to manage currency exchange rate risk and interest rate risk, and to a lesser extent, equity market risk and commodity price risk. All of the potential changes noted below are based on sensitivity analyses performed on our financial positions as of December 27, 2008 and December 29, 2007. Actual results may differ materially.

Currency Exchange Rates

We generally hedge currency risks of non-U.S.-dollar-denominated investments in debt instruments with offsetting currency borrowings, currency forward contracts, or currency interest rate swaps. Gains and losses on these non-U.S.-currency investments would generally be offset by corresponding losses and gains on the related hedging instruments, resulting in a negligible net exposure.

A majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, certain operating expenditures and capital purchases are incurred in or exposed to other currencies, primarily the euro, the Japanese yen, and the Israeli shekel. We have established balance sheet and forecasted transaction currency risk management programs to protect against fluctuations in fair value and the volatility of future cash flows caused by changes in exchange rates. We generally utilize currency forward contracts and, to a lesser extent, currency options in these hedging programs. Our hedging programs reduce, but do not always entirely eliminate, the impact of currency exchange rate movements (see "Risk Factors" in Part I, Item 1A of this Form 10-K). We considered the historical trends in currency exchange rates and determined that it was reasonably possible that a weighted average adverse change of 20% in currency exchange rates could be experienced in the near term. Such an adverse change, after taking into account hedges and offsetting positions, would have resulted in an adverse impact on income before taxes of less than $55 million at the end of 2008 (less than $35 million at the end of 2007, using a weighted average adverse change of 15% in currency exchange rates). The weighted average adverse change increased from the end of 2007 to the end of 2008, due to a higher relative weighting of more volatile currencies.

Interest Rates

We are exposed to interest rate risk related to our investment portfolio and debt issuances. The primary objective of our investments in debt instruments is to preserve principal while maximizing yields. To achieve this objective, the returns on our investments in debt instruments are generally based on three-month LIBOR, or, if the maturities are longer than three months, the returns are generally swapped into U.S. dollar three-month LIBOR-based returns. The current financial markets are extremely volatile. A hypothetical 1.0% decrease in interest rates, after taking into account hedges and offsetting positions, would have resulted in a decrease in the fair value of our net investment position of approximately $135 million as of December 27, 2008 and $80 million as of December 29, 2007. The hypothetical 1.0% interest rate decrease would have resulted in an increase in the fair value of our debt issuances of approximately $150 million as of December 27, 2008 and would have resulted in an increase in the fair value of our investment portfolio of approximately $15 million as of December 27, 2008 (an increase in the fair value of our debt issuances of approximately $95 million as of December 29, 2007 and an increase in the fair value of our investment portfolio of approximately $15 million as of December 29, 2007). The fluctuations in fair value of our debt issuances and investment portfolio reflect only the direct impact of the change in interest rates. Other economic variables, such as equity market fluctuations and changes in relative credit risk, could result in a significantly higher decline in our net investment portfolio. For further information on how credit risk is factored into the valuation of our investment portfolio and debt issuances, see "Fair Value" in Part II, Item 7 of this Form 10-K.

Equity Prices

Our marketable equity investments include marketable equity securities and equity derivative instruments such as warrants and options. To the extent that our marketable equity securities have strategic value, we typically do not attempt to reduce or eliminate our equity market exposure through hedging activities; however, for our investments in strategic equity derivative instruments, including warrants, we may enter into transactions to reduce or eliminate the equity market risks. For securities that we no longer consider strategic, we evaluate legal, market, and economic factors in our decision on the timing of disposal and whether it is possible and appropriate to hedge the equity market risk.

The marketable equity securities included in trading assets are held to generate returns that seek to offset changes in liabilities related to the equity and other market risks of certain deferred compensation arrangements. The gains and losses from changes in fair value of these equity securities are offset by the gains and losses on the related liabilities. Assuming a decline in market prices of approximately 25%, our net exposure to loss was approximately $40 million as of December 27, 2008 and approximately $20 million as of December 29, 2007.

As of December 27, 2008, the fair value of our available-for-sale marketable equity securities and our equity derivative instruments, including hedging positions, was $362 million ($1.0 billion as of December 29, 2007). Our investments in the new Clearwire Corporation, VMware, and Micron constituted 90% of our marketable equity securities as of December 27, 2008, and were carried at a fair market value of $148 million, $137 million, and $42 million, respectively. The current equity markets are extremely volatile. Assuming a loss of 60% in market prices, and after reflecting the impact of hedges and offsetting positions, the aggregate value of our marketable equity investments could decrease by approximately $220 million, based on the value as of December 27, 2008 (a decrease in value of $565 million, based on the value as of December 29, 2007 using an assumed loss of 55%). The increase in the assumed loss percentage from December 29, 2007 to December 27, 2008 is due to a higher relative weighting of more volatile investments.

Many of the same factors that could result in an adverse movement of equity market prices affect our non-marketable equity investments, although we cannot always quantify the impact directly. The current financial markets are extremely volatile and there has been a tightening of the credit markets, which could negatively affect the prospects of the companies we invest in, their ability to raise additional capital, and the likelihood of our being able to realize value in our investments through liquidity events such as initial public offerings, mergers, and private sales. These types of investments involve a great deal of risk, and there can be no assurance that any specific company will grow or become successful; consequently, we could lose all or part of our investment. Our non-marketable equity investments, excluding investments accounted for under the equity method, had a carrying amount of $1.0 billion as of December 27, 2008 ($805 million as of December 29, 2007). As of December 27, 2008, the carrying amount of our non-marketable equity method investments was $3.0 billion ($2.6 billion as of December 29, 2007). Most of the balance as of December 27, 2008 was concentrated in companies in the flash memory market segment and wireless connectivity market segment. Our flash memory market segment investments include our investment of $1.7 billion in IMFT ($2.2 billion as of December 29, 2007), $329 million in IMFS ($146 million as of December 29, 2007), and $484 million in Numonyx. Our wireless connectivity market segment investments include our non-marketable equity method investment in Clearwire LLC of $238 million. See "Note 6: Equity Method and Cost Method Investments" in Part II, Item 8 of this Form 10-K.