Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk and Risk Management

Carrier is exposed to fluctuations in foreign currency exchange rates, interest rates and commodity prices. To manage certain of these exposures, we primarily use foreign currency forward contracts, swaps and options. Factors that could influence the effectiveness of these hedging programs include currency markets, the availability of hedging instruments and the liquidity of the credit markets. There has been no significant change in our exposure to market risk for the year ended December 31, 2021.

Foreign Currency Exposures. We transact business in various foreign currencies, which exposes our cash flows and earnings to changes in foreign currency exchange rates. These exposures include the translation of local currency balances of foreign subsidiaries, remeasurement of assets and liabilities denominated in foreign currencies and other transactions involving foreign currencies. We attempt to manage foreign currency transaction exposures through operational strategies and the use of foreign currency hedging contracts. While the objective of our hedging program is to minimize the foreign currency exchange rate impact on operating results, there may be variances between the gains and losses resulting from the hedging contracts and the underlying exposures because of the duration of certain hedging contracts. We do not enter into hedging contracts for speculative purposes.

Commodity Price Exposures. We are exposed to volatility in the prices of raw materials used in some of our products and fuel costs to ship our products and materials. From time to time, we may use forward contracts in limited circumstances to manage some of those exposures. We do not enter into hedging contracts for speculative purposes. When hedges are utilized, gains and losses may affect earnings. Derivative activity as of December 31, 2021 was not material to our financial statements.

Interest Rate Exposures. Our long-term debt consists mostly of fixed-rate instruments. We may issue commercial paper, which exposes us to changes in interest rates. Currently, we do not hold any derivative contracts that hedge our interest rate exposures, but may consider such strategies in the future.

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