121 ANNUAL REPORT 2010 analysis considers the interdependency between interest rates  and lapse behavior for products sold in the Americas where there  is clear evidence of dynamic lapse behavior. Management action  is taken into account to the extent that it is part of AEGON’s  regular policies and procedures, such as established hedging  programs. However, incidental management actions that would  require a change in policies and procedures are not considered.  Each sensitivity analysis reflects the extent to which the shock  tested would affect management’s critical accounting estimates  and judgment in applying AEGON’s accounting policies$^{ 1}$. Market- consistent assumptions underlying the measurement of non- listed assets and liabilities are adjusted to reflect the shock  tested. The shock may also affect the measurement of assets  and liabilities based on assumptions that are not observable in  the market. For example, a shock in interest rates may lead to  changes in the amortization schedule of DPAC or to increased  impairment losses on equity investments. Although  management’s short-term assumptions may change if there is  a reasonable change in a risk factor, long-term assumptions  will generally not be revised unless there is evidence that the  movement is permanent. This fact is reflected in the sensitivity  analyses provided below. The accounting mismatch inherent in IFRS is also apparent in  the reported sensitivities. A change in interest rates has an  immediate impact on the carrying amount of assets measured at  fair value. However the shock will not have a similar effect on the  carrying amount of the related insurance liabilities that are  measured based on prudent assumptions or on management’s  long-term expectations. Consequently, the different  measurement bases for assets and liabilities lead to increased  volatility in IFRS net income and shareholders’ equity. AEGON has  classified a significant part of its investment portfolio as  ’available for sale‘, which is one of the main reasons why the  economic shocks tested have a different impact on net income  than on shareholders’ equity. Unrealized gains and losses on  these assets are not recognized in the income statement but are  booked directly to the revaluation reserves in shareholders’  equity, unless impaired. As a result, economic sensitivities  predominantly impact shareholders’ equity but leave net income  unaffected. The effect of movements of the revaluation reserve  on capitalization ratios and capital adequacy are minimal.  AEGON's target ratio for the composition of its capital base is  based on shareholders' equity excluding the revaluation reserve.  The sensitivities do not reflect what the net income for the  period would have been if risk variables had been different  because the analysis is based on the exposures in existence at  the reporting date rather than on those that actually occurred  during the year. Nor are the results of the sensitivities intended  to be an accurate prediction of AEGON’s future shareholders’  equity or earnings. The analysis does not take into account  the impact of future new business, which is an important  component of AEGON’s future earnings. It also does not  consider all methods available to management to respond  to changes in the financial environment, such as changing  investment portfolio allocations or adjusting premiums and  crediting rates. Furthermore, the results of the analyses cannot  be extrapolated for wider variations since effects do not tend  to be linear. No risk management process can clearly predict  future results. As an international group, AEGON is subject to foreign currency  translation risk. Foreign currency exposure exists when policies  are denominated in currencies other than the issuer’s  functional currency. Currency risk in the investment portfolios  backing insurance and investment liabilities is managed using  asset liability matching principles. Assets allocated to equity  are kept in local currencies to the extent shareholders’ equity  is required to satisfy regulatory and self-imposed capital  requirements. Therefore, currency exchange rate fluctuations  will affect the level of shareholders’ equity as a result of  translation of subsidiaries into euro, the Group’s presentation  currency. AEGON holds the remainder of its capital base  (convertible core capital securities, perpetual capital securities,  subordinated and senior debt) in various currencies in amounts  that are targeted to correspond to the book value of the  country units. This balancing mitigates currency translation  impacts on shareholders’ equity and leverage ratios. AEGON  does not hedge the income streams from the main non-euro  units and, as a result, earnings may fluctuate due to currency  translation. As AEGON has significant business segments in the  Americas and in the United Kingdom, the principal sources of  exposure from currency fluctuations are from the differences  between the US dollar and the euro and between the UK pound  and the euro. AEGON may experience significant changes in net  income and shareholders’ equity because of these fluctuations. CURRENCY EXCHANGE RATE RISK 1 Please refer to note 3 for a description of the critical accounting estimates and judgments. SHARPENING OUR FOCUS