Financial Instruments And Hedging Activities

12 Months Ended

Dec. 31, 2011

Financial Instruments And Hedging Activities [Abstract]

Financial Instruments And Hedging Activities

13. Financial instruments and hedging activities

Risk management

Nortel's net earnings (loss) and cash flows may be negatively impacted by fluctuation in interest rates, foreign exchange rates and equity prices. To effectively manage these market risks, in prior years Nortel had entered into foreign currency forwards, foreign currency swaps, foreign currency option contracts, interest rate swaps and equity forward contracts. Nortel did not hold or issue derivative financial instruments for trading purposes. As a result of the Creditor Protection Proceedings the financial institutions that were counterparties in respect of these transactions terminated the related instruments. Consequently, Nortel no longer has any such financial instruments outstanding and is now fully exposed to these interest rate and foreign currency risks and is expected to stay exposed until the conclusion of the Creditor Protection Proceedings.

Fair value

The estimated fair values of the financial instruments in the table below reflect approximate amounts at which they could be exchanged in a current transaction between willing parties. The fair values are based on estimates using present value and other valuation techniques that are significantly affected by the assumptions used concerning the amount and timing of estimated future cash flows and discount rates that reflect varying degrees of risk. Specifically, the fair value of long-term debt instruments reflected a current yield valuation based on observed market prices as of December 31, 2011 and 2010. Accordingly, the fair value estimates are not necessarily indicative of the amounts that Nortel could potentially realize in a current market exchange.

	2011				2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities:
Long-term debt including amounts subject to compromise (a)	$	4,019	$	4,097	$	4,019	$	3,203

(a) Excludes capital leases.

Concentrations of risk

Nortel limits its credit risk by dealing with counterparties that are considered to be of reputable credit quality. Nortel's cash and cash equivalents are maintained with several financial institutions in the form of short- term money market instruments, the balances of which, at times, may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore are expected to bear minimal credit risk. Nortel seeks to mitigate such risks by spreading its risk across multiple counterparties and monitoring the risk profiles of these counterparties. However, as a consequence of Creditor Protection Proceedings, Nortel is more reliant on a limited number of financial institutions for cash management, thereby increasing its counterparty credit risk.