ITEM 7A. Quantitative and qualitative disclosures about market risk

Foreign exchange risk

The U. S. dollar is our functional currency for financial reporting. Our non-U. S. entities own assets or liabilities denominated in U. S. dollars or other currencies, and exchange rate fluctuations in those jurisdictions may impact our effective tax rate.

Our balance sheet also reflects amounts remeasured from non-U. S. dollar currencies. Because most of the aggregate non-U. S. dollar balance sheet exposure is hedged by forward currency exchange contracts, which are based on year-end 2024 balances and currency exchange rates, a hypothetical 10% plus or minus fluctuation in non-U. S. currency exchange rates relative to the U. S. dollar would result in a pretax currency exchange gain or loss of less than $1 million.

We use these forward currency exchange contracts to reduce the earnings impact that exchange rate fluctuations may have on our non-U. S. dollar net balance sheet exposures. As of December 31, 2024, we had forward currency exchange contracts outstanding with a notional value of $565 million to hedge net balance sheet exposures (including $180 million to buy Indian rupee,$91 million to sell British pounds and $78 million to sell Japanese yen). Similar hedging activities existed at year-end 2023.

Interest rate risk

We have the following potential exposure to changes in interest rates: (i) the effect of changes in interest rates on the fair value of our investments in cash equivalents and short-term investments, which could produce a gain or a loss; and (ii) the effect of changes in interest rates on the fair value of our debt.

As of December 31, 2024, a hypothetical 100 basis point increase in interest rates would decrease the fair value of our investments in cash equivalents and short-term investments by about $22 million and decrease the fair value of our long-term debt by $952 million. Because interest rates on our long-term debt are fixed, changes in interest rates would not affect the cash flows associated with long-term debt.

ITEM 8. Financial statements and supplementary data