Bristol-Myers Squibb  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  $^{ }$Foreign Exchange Risk $^{ }$Interest Rate Risk  $^{ }$Credit Risk  28 $^{ }$The use of derivative instruments exposes us to credit risk. When the fair value of a derivative instrument contract is positive, we are  exposed to credit risk if the counterparty fails to perform. When the fair value of a derivative instrument contract is negative, the  counterparty is exposed to credit risk if we fail to perform our obligation. Under the terms of the agreements, posting of collateral is  not required by any party whether derivatives are in an asset or liability position. We have a policy of diversifying derivatives with  counterparties to mitigate the overall risk of counterparty defaults. For additional information, see Note 9 “Financial Instruments.”  $^{ }$We monitor our investments with counterparties with the objective of minimizing concentrations of credit risk. Our investment policy  places limits on the amount and time to maturity of investments with any individual counterparty. The policy also requires that  investments are made primarily with highly rated corporate, financial, U.S. government and government supported institutions.  $^{ }$Although not material, certain European government-backed entities with a higher risk of default were identified by monitoring  economic factors including credit ratings, credit-default swap rates and debt-to-gross domestic product ratios in addition to entity  specific factors. Historically, our exposure was limited by factoring receivables and deferring revenues until the collection of cash. However, during 2012, counterparties in our factoring arrangements suspended factoring of receivables from Spanish and Portuguese  government-backed entities and limited factoring of receivables from certain Italian government-backed entities. Our credit exposures  in Europe may increase in the future due to further reductions in our factoring arrangements and the ongoing sovereign debt crisis. Our credit exposure to government-backed trade receivables in Greece, Portugal, Italy and Spain were approximately $252 million at  December 31, 2012, of which approximately 75% is from government-backed entities.  We estimate that an increase of 100 basis points in long-term interest rates would decrease the fair value of long-term debt by $621  million. Our marketable securities are subject to changes in fair value as a result of interest rate fluctuations and other market factors. Our policy is to invest only in institutions that meet high credit quality standards. We estimate that an increase of 100 basis points in  interest rates in general would decrease the fair value of our debt security portfolio by approximately $95 million.  $^{ }$Fixed-to-floating interest rate swap contracts are used and designated as fair-value hedges as part of our interest rate risk management  strategy. These contracts are intended to provide us with an appropriate balance of fixed and floating rate debt. We estimate that an  increase of 100 basis points in short-term or long-term interest rates would decrease the fair value of our interest rate swap contracts  by $66 million, excluding the effects of our counterparty and our own credit risk. If realized, the fair value reduction would affect  earnings over the remaining life of the contracts.  $^{ }$We are also exposed to translation risk on non-U.S. dollar-denominated net assets. Non-U.S. dollar borrowings are used to hedge the  foreign currency exposures of our net investment in certain foreign affiliates and are designated as hedges of net investments. The  effective portion of foreign exchange gains or losses on these hedges is recognized as part of the foreign currency translation  component of accumulated OCI. If our net investment were to fall below the equivalent value of the non-U.S. debt borrowings, the  change in the remeasurement basis of the debt would be subject to recognition in income as changes occur. For additional  information, see Note 9 “Financial Instruments.”  $^{ }$We estimate that a 10% appreciation in the underlying currencies being hedged from their levels against the U.S. dollar (with all other  variables held constant) would decrease the fair value of foreign exchange forward contracts by $162 million at December 31, 2012. If realized, this appreciation would negatively affect earnings over the remaining life of the contracts.  $^{ }$Significant amounts of our revenues, earnings and cash flow is exposed to changes in foreign currency rates. Our primary net foreign  currency translation exposures are the euro, Japanese yen, Chinese renminbi, Canadian dollar and British pound. Foreign currency  forward contracts are used to manage foreign exchange risk that primarily arises from certain intercompany purchase transactions and  are designated as foreign currency cash flow hedges when appropriate. In addition, we are exposed to foreign exchange transaction  risk that arises from non-functional currency denominated assets and liabilities and earnings denominated in non-U.S. dollar  currencies. Foreign currency forward contracts are used to offset a portion of these exposures and are not designated as hedges. Changes in the fair value of these derivatives are recognized in earnings as incurred.  $^{ }$We are exposed to market risk resulting from changes in currency exchange rates and interest rates. Certain derivative financial  instruments are used when available on a cost-effective basis to hedge our underlying economic exposure. All of our financial  instruments, including derivatives, are subject to counterparty credit risk considered as part of the overall fair value measurement. Derivative financial instruments are not used for trading purposes. 