Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Equity Risk
We have exposure to equity risk with respect to the equity investments that we hold in Arcturus and Solid. The carrying value of our equity investment held in Arcturus was $95.4 million and $27.8 million as of December 31 , 2020 and 2019, respectively, and the carrying value of our equity investment held in Solid was $59.3 million as of December 31, 2020. If the Arcturus or Solid stock price had been lower at December 31 , 2020 compared to December 31, 2019, we would have reported an even greater net loss for the year ended December 31 , 2020. A hypothetical 10 percent decrease in the market price for our equity investments as of December 31, 2020 and 2019 would decrease the fair value by $15.5 million and $2.7 million, respectively. Given the historic volatility of the publicly traded stock price of Arcturus and Solid, the fair value of our investments in Arcturus and Solid is subject to wide fluctuations which may have a significant impact on our net income (loss) in future periods.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to interest earned on our cash equivalents and marketable debt securities . 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 December 31, 2020 and 2019, we had cash, cash equivalents, and marketable debt securities totaling $1,212.0 million and $760.4 million, respectively, 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 may continue to decrease. A hypothetical 100 basis point change in interest rates during any of the periods presented would not have had a material impact on the fair market value of our cash equivalents and marketable debt securities as of December 31, 2020 and 2019. To date, we have not experienced a loss of principal on any of our investments and as of December 31 , 2020, we did not record any allowance for credit loss from our investments.
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 year ended December 31 , 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.
Item 8. Financial Statements and Supplementary Data
Our financial statements are annexed to this Annual Report beginning on page F-1 and are incorporated by reference into this Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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