Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest rate risk
Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change. Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short-term to maturity. During the year ended December 31, 2020, the Company had net interest income of $18.4 million (December 31, 2019 – $28.0 million). A 10% change in the interest rate in effect on December 31, 2020 and December 31, 2019, would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio has a maturity date of three months or less, or (ii) net interest income. Management continues to monitor external interest rates and revise the Company’s investment strategy as a result.
During the year ended December 31, 2020, the Company’s average variable interest rate fell 1.49%, which resulted in a decrease of net interest income, of $15.7 million in the period. During the year ended December 31, 2019, the Company’s average variable interest rate did not materially change.
Currency rate risk
Currency rate risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to changes in foreign exchange rates. The Company is exposed to this risk on advances to joint ventures denominated in A$. The Company is further exposed to this risk through subsidiaries operating in Israel and the U.S. as the Company’s functional currency is in Canadian dollars. The Company does not currently use foreign exchange contracts to hedge its exposure to currency rate risk. As such, the Company’s financial position and financial results may be adversely affected by the unfavorable fluctuations in currency exchange rates.
As of December 31, 2020, the Company had foreign currency gain on translation of $15.0 million (December 31, 2019 – $37.7 million). A 10% change in the exchange rates for the foreign currencies would affect the carrying value of net assets by approximately $170.8 million as of December 31, 2020 (December 31, 2019 – $174.9 million).
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