In Note D to its 2011 financial statements, IBM includes disclosure about its derivatives as follows:

Note: AOCI represents Accumulated other comprehensive income/(loss) in Consolidated Statement of Changes in Equity.
(1) See pages 76 and 77 for additional information on the purpose for entering into derivatives not designated as hedging instruments.
(2) Includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts.
(3) Includes basis adjustments to the carrying value of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated hedging relationships during the period.
(4) Amount of gain (loss) recognized in income represents ineffectiveness on hedge relationships.
(5) Instruments in net investment hedges include derivative and non-derivative instruments.
At December 31, 2011, in connection with cash flow hedges of anticipated royalties and cost transactions, the company recorded net gains of $88 million (before taxes) in other comprehensive income; $191 million of gains are expected to be reclassified to net income within the next 12 months, providing an offsetting economic impact against underlying anticipated transactions. At December 31, 2011, net losses of approximately $5 million (before taxes) were recorded in other comprehensive income/(loss) in connection with cash flow hedges of the company's borrowings; $6 million of losses are expected to be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying transactions. For the 12 months ending December 31, 2011, there were no significant gains or losses recognized in earnings representing hedge ineffectiveness or excluded from the assessment of hedge effectiveness (for fair value hedges), or associated with an underlying exposure that did not or was not expected to occur (for cash flow hedges); nor are there any anticipated in the normal course of business.
1. IBM reports that it uses both fair value and cash flow hedges in its debt risk management program. Most of these hedges are accomplished through interest rate swaps. Some of the interest rate swaps are pay-fixed, receive-variable swaps, and some are pay-variable, receive-fixed swaps. Which of these two types of swaps are fair value hedges, and which are cash flow hedges? Explain.
2. IBM lists $1,884 million in long-term debt as a hedge. What does this debt hedge, and how does the debt serve as an effective hedge?
3. As of December 31, 2011, IBM has recognized $83 million in net unrealized gains associated with cash flow hedges. Of these net gains, how much is related to cash flow transactions expected to occur within one year?
4. What type of disclosure would give the best indication of IBM's exposure to foreign exchange and interest rate risk?

Fair Values of Derivative Instruments on the Consolidated Statement of Financial Position ($ in millions) Fair Value of Derivative Assets Fair Value of Derivative Liabilities Not Not Designated Designated as Hedging Instruments as Hedging Instruments Designated Designated as Hedging as Hedging TotalInstruments Instruments Total At December 31, 2011: Interest rate contracts: Prepaid expenses and other $ 50 733 S 50 - current assets. Investments and sundry assets Foreign exchange contracts: Prepaid expenses and other 733 82 current assets. Investments and sundry assets Other accrued Other liabilities Equity contracts: Prepaid expenses and other 21 21 357 273 155 expenses and liabilities. 84 166 current assets. Other accrued Fair value of derivative assets expenses and liabilities. 8 and liabilities $1,190 $110 1300 428 103 S 531 Total debt designated as hedging instruments: Short-term debt. Long-term debt Total NA 1,884 $2,415 NA 1,884 $1,300 The Effect of Derivative Instruments on the Consolidated Statement of Earnings ($ in millions) For the year ended December 31, 2011: Gain (Loss) Recognized in Earnings Consolidated Statement of Earnings Line ltem Attributable to Risk Being Hedged(3) Derivative Instruments in Recognized on Derivatives(2) Fair Value Hedges $271 205 $476 Interest expense (89) $(206) Gain (Loss) Recognized in Earnings and Other Comprehensive Income Effective Portion Reclassified from OCI to Earnings Ineffectiveness and Amounts Excluded from Effectiveness Testing(4 Derivative Instruments in Effective Portion Recognized in OCI Consolidated Statement Cash Flow Hedges(5) Interest rate contracts Foreign exchange contracts of Earnings Line Item Interest expense Other (income) and expense Cost of sales SG&A expense $ (8) (247) (266) (182) (74) Total $(266) $(3) Gain (Loss) Recognized in Earnings and Other Comprehensive Income Effective Portion Reclassified from OCI to Earnings Ineffectiveness and Amounts Excluded from Effectiveness Testing(4) Derivative Instruments in Net Investment Hedges(5) Recognized in OCI of Earnings Line Item Foreign exchange contracts $45 Interest expense $0 $(9) Derivative Instruments Not Designated as Hedging Instruments(1) Foreign exchange contracts Equity contracts Warrants/Other (income) and expense Total Consolidated Statement of Earnings Line ltemm Gain (Loss) Recognized in Earnings $352 42 10 $404 Other (income) and expense SG&A expense