Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates, which may affect future income, cash flows and the fair value of the Company, depending on changes to interest rates or foreign exchange rates. In certain situations, we may seek to reduce cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility. We continue to have exposure to such risks to the extent they are not hedged. We enter into derivative financial arrangements to the extent they meet the objectives described above, and we do not use derivatives for trading or speculative purposes.

Interest Rate Risk

We are exposed to interest rate risk on our variable-rate debt, and on our fixed-rate debt to the extent that the interest rate affects its fair value. We are most vulnerable to changes in one-month LIBOR, as the interest rate on our variable-rate debt is based on this index. We use interest rate swaps in order to maintain a level of exposure to interest rate variability that we deem acceptable, and as of December 31, 2017, we held two interest rate swaps which swap one-month LIBOR on the Term Loans to fixed rates. We elected to designate these interest rate swaps as cash flow hedges for accounting purposes.

The following table sets forth the contractual maturities and the total fair values as of December 31, 2017 for our financial instruments that are materially affected by interest rate risk, including long-term debt and interest rate swaps. For long-term debt, the table presents contractual maturities and related weighted average interest rates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by contractual maturity dates. Fixed rates are the weighted average actual rates and variable rates are the weighted average market rates prevailing as of December 31, 2017 for the interest rate hedges in place.

Refer to Note 11: "Derivative Instruments and Hedging Activities" and Note 12: "Fair Value Measurements" in our consolidated financial statements for additional information of the fair value measurements of our derivatives and financial assets and liabilities, respectively.

Foreign Currency Exchange Rate Risk

We conduct business in various currencies and are exposed to earnings and cash flow volatility associated with changes in foreign currency exchange rates. Our principal exposure results from management and franchise fees earned in foreign currencies and revenues from our international leased hotels, partially offset by foreign operating expenses, the value of which could change materially in reference to our reporting currency, USD. We also have exposure from our international financial assets and liabilities, including certain intercompany loans not deemed to be permanently invested, the value of which could change materially in reference to the functional currencies of the exposed entities. As of December 31, 2017, our largest net exposures were to the euro, GBP and AUD.

We use forward contracts designated as cash flow hedges to offset exposure from foreign currency exchange rate risks associated with our euro and yen denominated management and franchise fees. We use short-term foreign exchange forward contracts not designated as hedging instruments to offset exposure to cash balances denominated in foreign currencies. However, the fair value and earnings effect of these derivatives are not material to our consolidated financial statements.