MARKET RISK Quantitative and Qualitative Disclosures about Market Risk The financial instruments that NTT Group holds are continuously exposed to market fluctuations, such as changes in foreign currency exchange rates, interest rates and stock prices. NTT Group utilizes derivative financial instruments, such as forward exchange contracts, interest rate swap agreements, currency swap agreements, currency option agreements and forward contracts, from time to time, in order to limit its exposure to loss in relation to debt instruments or assets that may result from fluctuations, such as changes in foreign currency exchange rates and interest rates. NTT Group does not engage in derivative financial instrument transactions for trading purposes. The use of derivative financial instruments is based on specific internal rules and is subject to controls at the relevant department of the head offices of NTT and its subsidiaries. In most cases, derivative instrument transactions are integrated with the underlying debt instruments or financial assets, and the transactions are entered into on the same date as the debt instruments or financial assets and have the same maturity. See Note 22 to the Consolidated Financial Statements for additional information regarding NTT Group’s derivative instruments and hedging activities. Securities Price Risk NTT Group holds available-for-sale securities and held-to-maturity securities. Available-for-sale securities are held as long-term investments. NTT Group does not hold marketable securities for trading purposes. 119 Table of Contents Fair values of available-for-sale securities and held-to-maturity securities were as follows as of March 31, 2017: 2017 Cost Fair value(1) (in millions of yen) Available-for-sale securities ¥ 236,904 ¥ 431,892 Held-to-maturity securities ¥ 4,479 ¥ 4,554 (1) Information provided for reference only. Details of maturities and fair values of held-to-maturity securities were as follows: 2017 Cost Fair value(1) (in millions of yen) Maturing within 1 year ¥ 349 ¥ 346 Maturing between 1 year and 5 years ¥ 623 ¥ 630 Maturing between 5 years and 10 years ¥ 3,007 ¥ 3,039 Maturing after 10 years ¥ 500 ¥ 539 (1) Information provided for reference only. Foreign Exchange Risk NTT Group from time to time enters into forward exchange contracts and currency swap agreements to hedge the risk of fluctuations in foreign currency exchange rates associated with its foreign currency-denominated long-term debt. Such contracts and agreements are fixed at the same maturity as the underlying debt. Of NTT Group’s financial instruments as of March 31, 2017, certain forward exchange contracts were affected by foreign currency exchange rates, but the effect was immaterial. Amounts related to forward exchange contracts and currency swap agreements entered into in connection with foreign currency-denominated long-term debt that eliminate all foreign currency exposures are shown in the table under “Interest Rate Risk.” Interest Rate Risk Market risk for changes in interest rates to which NTT Group is exposed relates principally to debt obligations. NTT Group has long-term debt, primarily with fixed rates. NTT Group enters into interest rate swap agreements from time to time to convert underlying floating rate debt or assets into fixed rate debt or assets, or vice versa. NTT Group may also enter into interest rate option contracts to hedge the risk of a rise in the interest rate of underlying debt. The following tables provide information about NTT Group’s financial instruments that are affected by changes in interest rates, including debt obligations and interest rate swaps. For debt obligations, the table presents cash flows by expected maturity dates, weighted average interest rates and fair values of financial instruments. 120 Table of Contents For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected maturity dates and the fair value of the swap. Notional amounts are calculated based on the contractual payments. Weighted average floating rates are current as of March 31, 2017. While the information is presented in Japanese yen equivalents, the amounts are classified by the currency (Japanese yen and foreign currencies) of the financial instruments’ actual cash flows. Average interest rate Carrying amount and maturity date (year ending March 31) Fair value 2018 2019 2020 2021 2022 Thereafter Total (in millions of yen) Long-term debt including current portion Japanese yen bonds 1.17 % ¥ (284,990 ) ¥ (200,999 ) ¥ (219,973 ) ¥ (179,963 ) ¥ (100,091 ) ¥ (279,947 ) ¥ (1,265,963 ) ¥ (1,309,546 ) U.S. dollar bonds 1.71 % (140,225 ) (22,438 ) (56,079 ) (5,610 ) (84,024 ) — (308,376 ) (304,430 ) Borrowings from banks— Fixed rate: Japanese yen loans 0.87 % (162,203 ) (334,745 ) (164,831 ) (148,667 ) (178,244 ) (760,574 ) (1,749,264 ) (1,839,061 ) Euro loans 1.30 % (411 ) (164 ) (325 ) (239 ) (243 ) (14,196 ) (15,578 ) (15,595 ) Floating rate: Japanese yen loans 0.18 % (12,418 ) (5,646 ) (3,004 ) (726 ) (20,516 ) (39,600 ) (81,910 ) (82,325 ) U.S. dollar loans 1.59 % (66,164 ) (43,007 ) (16,510 ) (96,869 ) (11,100 ) (115,994 ) (349,644 ) (324,621 ) Other loans (primarily floating rate): (15,493 ) (18,068 ) (4,953 ) (12,683 ) (1,299 ) (27,151 ) (79,647 ) (78,054 ) Subtotal (681,904 ) (625,067 ) (465,675 ) (444,757 ) (395,517 ) (1,237,462 ) (3,850,382 ) (3,953,632 ) Forward exchange contracts 0 0 0 0 0 0 0 0 Currency swap agreements 40,596 0 8,318 (345 ) 4,127 (9,847 ) 42,849 42,849 Total ¥ (641,308 ) ¥ (625,067 ) ¥ (457,357 ) ¥ (445,102 ) ¥ (391,390 ) ¥ (1,247,309 ) ¥ (3,807,533 ) ¥ (3,910,783 ) Notional amount and average interest rate (year ending March 31) Fair value 2018 2019 2020 2021 2022 Thereafter (in millions of yen) Interest rate swap agreements Floating to Fixed (Japanese yen) ¥ 35,052 ¥ 19,551 ¥ 3,393 ¥ 15,251 ¥ 27,652 ¥ 85,024 ¥ (3,594 ) Average pay rate 0.5 % 1.3 % 1.8 % 2.4 % 1.3 % 1.7 % Average receive rate 0.2 % 0.8 % 1.1 % 1.6 % 0.5 % 0.7 % Fixed to Floating (Japanese yen) ¥ 0 ¥ 0 ¥ 0 ¥ 5,610 ¥ 0 ¥ 0 ¥ (56 ) Average pay rate 0.0 % 0.0 % 0.0 % 1.44 % 0.0 % 0.0 % Average receive rate 0.0 % 0.0 % 0.0 % 2.07 % 0.0 % 0.0 % Floating to Floating (Japanese yen) ¥ 0 ¥ 0 ¥ 0 ¥ 0 ¥ 0 ¥ 0 ¥ 0 Average pay rate 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % Average receive rate 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 121 Table of Contents