Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary areas of market risk include changes in: (1) the price of coal, which is the key raw material for our cokemaking business; (2) interest rates; and (3) foreign currency exchange rates. We do not enter into any market risk sensitive instruments for trading purposes.
Price of coal
Although we have not previously done so, we may enter into derivative financial instruments from time to time in the future to economically manage our exposure related to these market risks.
For our Domestic Coke segment, the largest component of the price of our coke is coal cost. However, under long-term, take-or-pay coke sales agreements at our Domestic Coke cokemaking facilities, coal costs are a pass-through component of the coke price, provided that we are able to realize certain targeted coal-to-coke yields. As such, when targeted coal-to-coke yields are achieved, the price of coal is not a significant determining factor in the profitability of these facilities. The coal component of the Jewell coke price has historically been fixed annually for each calendar year based on the weighted-average contract price of third-party coal purchases at our Haverhill facility applicable to Cliffs Steel coke sales. Beginning in 2022, Jewell coal purchases will be passed through at actual cost rather than at the price of Haverhill's coal, consistent with our other long-term, take-or-pay agreements. Additionally, we are subject to market risk for the price of coals used to produce any tonnage in excess of those tons contracted in our long-term, take-or-pay coke sales agreements, specifically as it relates to the export and foundry coke markets. Export coke sales are based on coal market pricing at the time of sale, and do not contain the same pass-through provisions as our long-term, take-or-pay agreements. Our foundry coke prices are largely set at the time we negotiate our coal purchases.
The provisions of our coke sales agreements require us to meet minimum production levels and generally require us to secure replacement coke supplies at the prevailing market price if we do not meet contractual minimum volumes. Because market prices for coke are generally highly correlated to market prices for metallurgical coal, to the extent any of our facilities are unable to produce their contractual minimum volumes, we are subject to market risk related to the procurement of replacement supplies.
Interest rates
We are exposed to changes in interest rates as a result of borrowing activities with variable interest rates and interest earned on our cash balances. During the years ended December 31, 2021 and 2020, the daily average outstanding balance on borrowings with variable interest rates was $102.8 million and $147.9 million, respectively. Assuming a 50 basis point change in LIBOR, interest expense would have been impacted by $0.5 million and $0.7 million in 2021 and 2020, respectively. At December 31, 2021, we had outstanding borrowings with variable interest rates of $115.0 million under the Revolving Facility.
At December 31, 2021 and 2020, we had cash and cash equivalents of $63.8 million and $48.4 million, respectively, which accrue interest at various rates. Assuming a 50 basis point change in the rate of interest associated with our cash and cash equivalents, interest income would have been impacted by $0.3 million and $0.5 million for the years ended December 31, 2021 and 2020, respectively.
Foreign currency
Because we operate outside the U.S., we are subject to risk resulting from changes in the Brazilian real currency exchange rates. The currency exchange rates are influenced by a variety of economic factors including local inflation, growth, interest rates and governmental actions, as well as other factors. Revenues and expenses of our foreign operations are translated at average exchange rates during the period and balance sheet accounts are translated at period-end exchange rates. Balance sheet translation adjustments are excluded from the results of operations and are recorded in equity as a component of accumulated other compr ehensive loss. If the currency exchange rates had changed by 10 percent, we estimate the impact to our net income in 2021 and 2020 would have been approximately $0.5 million and $0.3 million.
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