Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have market risk exposure related to interest rates and foreign currency exchange rates. Market risk is measured as the potential negative impact on earnings, cash flows, or fair values resulting from a hypothetical change in interest rates or foreign currency exchange rates.
Interest Rate Risk
We are primarily exposed to interest rate risk through our variable rate borrowings under our Credit Facility. At October 31, 2020, we had total outstanding borrowings of $725.3 million. To limit exposure to upward movements in interest rates, we entered into interest rate swap agreements to fix the interest rates on a substantial portion of our outstanding borrowings. At October 31, 2020, we had interest rate swaps with an underlying notional amount of $440.0 million and fixed interest rates of 2.83%, 2.84%, and 2.86%. On May 28, 2020, we amended our Credit Facility to further enhance our financial flexibility as a precautionary measure in response to uncertainty arising from the Pandemic. The Amendment changed the interest rate, interest margins, and commitment fees applicable to loans and commitments under the Credit Facility. The new interest rate includes an interest rate floor of 0.75% to the Eurocurrency rate on the revolving loans. Based on our average borrowings, interest rates, interest rate floor, and interest rate swaps in effect at October 31, 2020, a 100 basis point increase in LIBOR would decrease our future earnings and cash flows by $2.5 million. For 2019, our market risk exposure related to interest rate fluctuations was $4.3 million. As actual interest rate movements over time are uncertain, our interest rate swaps pose potential interest rate risks if interest rates decrease. As of October 31, 2020, the fair value of our interest rate swap agreements was a liability of $15.5 million.
Foreign Currency Exchange Rate Risk
We are primarily exposed to the impact of foreign exchange rate risk through our U.K. operations where the functional currency is the GBP. As we intend to remain permanently invested in these foreign operations, we do not utilize hedging instruments to mitigate foreign currency exchange risks. If we change our intent with respect to such international investment, we would expect to implement strategies designed to manage those risks in an effort to mitigate the effect of foreign currency fluctuations on our earnings and cash flows.
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