Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .
For a discussion of our hedging strategies and market risks, see the discussion below and the consolidated financial statements.
Fuel Price Risks
Substantially all our exposure to market risk for changes in fuel prices relates to the consumption of fuel on our ships.
Foreign Currency Exchange Rate Risks
Operational Currency Risks
Our operations primarily utilize the U.S. dollar, Euro, Sterling or the Australian dollar as their functional currencies. Our operations also have revenue and expenses denominated in non-functional currencies. Movements in foreign currency exchange rates will affect our financial statements.
Investment Currency Risks
The foreign currency exchange rates were as follows:
November 30,
USD to 1: 2023 2022
AUD $ 0.66 $ 0.66
CAD $ 0.74 $ 0.74
EUR $ 1.10 $ 1.03
GBP $ 1.27 $ 1.20
If the November 30, 2022 currency exchange rates had been used to translate our November 30, 2023 non-U.S. dollar functional currency operations’ assets and liabilities (instead of the November 30, 2023 U.S. dollar exchange rates), our total assets would have been lower by $1.0 billion and our total liabilities would have been lower by $0.5 billion.
As of November 30, 2023, we have a cross currency swap totaling $670 million which settles through 2024. This cross-currency swap is designated as a hedge of our net investments in foreign operations, which has a euro-denominated functional currency, thus partially offsetting the foreign currency exchange rate risk. Based on a 10% change in the U.S. dollar to euro exchange rate as of November 30, 2023, we estimate that the fair value of this cross-currency swap and offsetting change in U.S. dollar value of our net investments would change by $66 million.
Newbuild Currency Risks
At November 30, 2023, our remaining newbuild currency exchange rate risk primarily relates to euro-denominated newbuild contract payments, which represent a total unhedged commitment of $3.0 billion and relate to newbuilds scheduled to be delivered through 2025 to non-euro functional currency brands. The functional currency cost of each of these ships will increase or decrease based on changes in the exchange rates until the unhedged payments are made under the shipbuilding contract. We may enter into additional foreign currency derivatives to mitigate some of this foreign currency exchange rate risk. Based on a 1% change in euro to U.S. dollar exchange rates as of November 30, 2023, the remaining unhedged cost of these ships would have a corresponding change of $30 million.
Interest Rate Risks
The composition of our debt, interest rate swaps and cross currency swaps was as follows:
November 30, 2023
Fixed rate 62 %
EUR fixed rate
18 %
Floating rate 5 %
EUR floating rate
15 %
60
At November 30, 2023, we had interest rate swaps that have effectively changed $46 million of EURIBOR-based floating rate euro debt to fixed rate euro debt. We also had interest rate swap agreements which effectively changed $2.5 billion at November 30, 2023 of SOFR-based floating rate USD debt to fixed rate USD debt. Based on a 100 basis point change in the market interest rates, our annual interest expense on floating rate debt, including the effect of our interest rate swaps, will change by approximately $60 million.
61