Ultragenyx Pharmaceutical Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosures about Market Risk Equity Risk We have exposure to equity risk with respect to the equity securities that we hold in Arcturus. The carrying value of our investment in common stock and the option to purchase additional equity securities in Arcturus was $140.2 million and none, respectively, as of June 30, 2020, and $26.1 million and $1.7 million, respectively, as of December 31, 2019. If the Arcturus stock price had been lower at June 30, 2020 compared to December 31, 2019, we may have reported a net loss for the quarter and an even greater net loss for the six months ended June 30, 2020. Given the historic volatility of the publicly traded stock price of Arcturus, the fair value of our investments in Arcturus may be subject to wide fluctuations which may have a significant impact on our earnings in future periods. See Item 1A: "Risk Factors" for additional details. Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to interest earned on our cash equivalents and investments. The primary objective of our investment activities is to preserve our capital to fund operations. A secondary objective is to maximize income from our investments without assuming significant risk. Our investment policy provides for investments in low-risk, investment-grade debt instruments. As of June 30 , 2020, we had cash, cash equivalents, and investments totaling $817.5 million, compared to $760.4 million as of December 31, 2019, which include bank deposits, money market funds, U.S. government treasury and agency securities, and investment-grade corporate bond securities which are subject to default, changes in credit rating, and changes in market value. The securities in our investment portfolio are classified as available for sale and are subject to interest rate risk and will decrease in value if market interest rates increase. Due to the COVID-19 pandemic and the reduction of rates by the U.S. Federal Reserve, we expect that the interest yield on our investments will decrease. A hypothetical 100 basis point change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. To date, we have not experienced a loss of principal on any of our investments and as of June 30, 2020, we did not record any allowance for credit loss from our investments. 30 Foreign Currency Risk We face foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars. Due to the uncertain timing of expected payments in foreign currencies, we do not utilize any forward exchange contracts. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made. Volatile market conditions arising from the COVID-19 pandemic may result in significant changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our revenue and operating income as expressed in U.S. dollars. An adverse movement in foreign exchange rates could have a material effect on payments made to foreign suppliers and for license agreements. For the six months ended June 30, 2020, a majority of our revenue and expense activities and capital expenditures were denominated in U.S. dollars. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our consolidated financial statements.