Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosures
We are exposed to market risk related primarily to gold values and changes in foreign currency exchange rates.
Our earnings and financial position are affected by changes in gold values, and to a lesser extent silver and precious stone values, and the resulting impact on pawn lending, jewelry sales and jewelry cost of goods sold. The proceeds of scrap sales and our ability to sell jewelry inventory at an acceptable margin depend on gold values. The impact on our financial position and results of operations of a hypothetical change in gold values cannot be reasonably estimated due to the timing of scrap sales, among other operational considerations.
Our earnings and financial position are affected by foreign exchange rate fluctuations related to our equity investments and our operations outside the U.S. While we generally do not seek to hedge amounts in foreign currencies, we consider hedging strategies from time to time to mitigate certain discrete risks of exposure via short term arrangements.
The translation adjustment from Cash Converters International through June 30, 2020 (included in our September 30, 2020 results on a three-month lag) was a $1.7 million increase to stockholders’ equity, excluding income tax impacts. During the fiscal year ended September 30, 2020, the $1.00 Australian dollar to $0.6750 U.S. was flat as compared to the prior year.
The translation adjustment from Latin America primarily representing the change of the Mexican peso during the year ended September 30, 2020 was a $14.7 million decrease to stockholders’ equity. During the fiscal year ended September 30, 2020, the Mexican peso weakened approximately 10.7% to $1.00 Mexican to $0.0453 U.S. from $0.0507 U.S. as of September 30, 2019. During the fiscal year ended September 30, 2020, the Guatemalan quetzal weakened approximately 2.9% to Q1.00 Guatemalan to $0.1285 U.S. from $0.1324 U.S. as of September 30, 2019. We have currently assumed indefinite reinvestment of earnings and capital in Latin America. Accumulated translation gains or losses related to any future repatriation of earnings or capital would impact our earnings in the period of repatriation.
To a lesser degree, our operations are affected by fluctuations in the exchange rate of the Honduran lempira and the Peruvian sol.
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The translation adjustment from our Canadian operations representing the weakening of the Canadian dollar during the year ended September 30, 2020 was a $0.2 million decrease to stockholders’ equity. Dur ing the fiscal year ended September 30, 2020, the $1.00 Canadian dollar to $0.7507 U.S. was flat as compared to the prior year.
We cannot predict the future valuation of foreign currencies or how further movements in exchange rates could affect our future earnings or financial position due to the interrelationship of operating results and exchange rates.
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