Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We
are subject to financial market risks, including changes in interest rates. Interest rate sensitivity refers to the change in
our earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings,
our net investment income will be affected by the difference between the rate at which we invest and the rate at which we borrow.
As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect
on our net investment income.
Assuming
that the consolidated statement of assets and liabilities as of December 31, 2020 were to remain constant and that we took no
actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base
rate changes in interest rate.
Change in Interest Rates
Increase (Decrease) in Interest Income
Increase (Decrease) in Interest Expense
Net Increase (Decrease) in Net Investment Income
Down 25 basis points
$ (1,507,147 )
$ (987,500 )
$ (519,647 )
Up 100 basis points
6,028,588
3,950,000
2,078,588
Up 200 basis points
12,057,176
7,900,000
4,157,176
Up 300 basis points
18,085,764
11,850,000
6,235,764
The data in the table
is based on the Company’s current statement of assets and liabilities. As of December 31, 2020, the Company had $3.8 million
in net purchases that had not yet settled. After settlement of these purchases, the change in interest expense will be larger as
a result of the increase in the amount borrowed under the Credit Facility. The table does not include any change in dividend income
from the Company’s money market investments.
In
addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with changes
in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency markets, the
imposition or modification of foreign exchange controls, and potential illiquidity in the secondary market. These risks will vary
depending upon the currency or currencies involved.
We
measure exposure to interest rate and currency exchange rate fluctuations on an ongoing basis and may hedge against interest rate
and currency exchange rate fluctuations by using standard hedging instruments such as futures, options, swaps and forward contracts
and credit hedging contracts, such as credit default swaps, in each case, subject to the requirements of the 1940 Act. While hedging
activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits
of lower interest rates with respect to our portfolio of investments with fixed interest rates.
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