HP determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

Valuation techniques used by HP are based upon observable and unobservable inputs. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect HP's assumptions about market participant assumptions based on best information available. Observable inputs are the preferred source of values. These two types of inputs create the following fair value hierarchy:

Level 1—Quoted prices (unadjusted) for identical instruments in active markets.

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable.

The following section describes the valuation methodologies HP uses to measure its financial assets and liabilities at fair value.

Cash Equivalents and Investments: HP holds time deposits, money market funds, commercial paper, other debt securities primarily consisting of corporate and foreign government notes and bonds, and common stock and equivalents. Where applicable, HP uses quoted prices in active markets for identical assets to determine fair value. If quoted prices in active markets for identical assets are not available to determine fair value, HP uses quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly. If quoted prices for identical or similar assets are not available, HP uses internally developed valuation models, whose inputs include bid prices, and third-party valuations utilizing underlying assets assumptions.

Derivative Instruments: As discussed in Note 8, HP mainly holds non-speculative forwards, swaps and options to hedge certain foreign currency and interest rate exposures. When active market quotes are not available, HP uses industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies. In certain cases, market-based observable inputs are not available and, in those cases, HP uses management judgment to develop assumptions which are used to determine fair value.

The following table presents HP's assets and liabilities that are measured at fair value on a recurring basis:

			As of July 31, 2011								As of October 31, 2010

			Fair Value Measured Using								Fair Value Measured Using
			Fair Value Measured Using						Total Balance		Fair Value Measured Using						Total Balance
			Level 1		Level 2		Level 3		Total Balance		Level 1		Level 2		Level 3		Total Balance
			In millions
Assets
Time deposits			$	—	$	8,307	$	—	$	8,307	$	—	$	6,598	$	—	$	6,598
Commercial paper				—		450		—		450		—		—		—		—
Money market funds				897		—		—		897		971		—		—		971
Marketable equity securities				8		3		—		11		11		3		—		14
Foreign bonds				8		385		—		393		8		365		—		373
Corporate bonds and other debt securities				3		2		49		54		3		6		50		59
Derivatives:
	Interest rate contracts			—		581		—		581		—		735		—		735
	Foreign exchange contracts			—		90		37		127		—		150		32		182
	Other derivatives			—		2		5		7		—		5		6		11

		Total Assets	$	916	$	9,820	$	91	$	10,827	$	993	$	7,862	$	88	$	8,943

Liabilities
Derivatives:
	Interest rate contracts		$	—	$	67	$	—	$	67	$	—	$	89	$	—	$	89
	Foreign exchange contracts			—		1,013		17		1,030		—		880		10		890
	Other derivatives			—		9		—		9		—		—		—		—

		Total Liabilities	$	—	$	1,089	$	17	$	1,106	$	—	$	969	$	10	$	979