Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We manage interest rate exposure by limiting variable rate exposures to a percentage of total debt and by entering into financial derivative instruments, which may include instruments such as, but not limited to, interest rate swaps and interest rate caps. Our earnings could be affected by changes in interest rates due to the impact those changes have on our variable rate debt obligations, which represented 26.6% of our total debt as of December 31, 2023. If interest rates average one percentage point more in fiscal year 2024 than they did during 2023, our interest expense would increase by $8.7 million, after considering the effects of interest rate hedges. In comparison, at December 31, 2022, we estimated that if interest rates averaged one percentage point more in fiscal year 2023 than they did during 2022, our interest expense would have increased by $12.3 million. The impact of an increase in interest rates was determined based on the impact of the hypothetical change in interest rates and scheduled principal payments on our variable-rate debt obligations as of December 31, 2023 and 2022. A one percentage point increase in the interest rate yield would decrease the fair value of the fixed rate debt by approximately $110.9 million. A one percentage point decrease in the interest rate yield would increase the fair value of the fixed rate debt by approximately $115.7 million.
We use derivative instruments to mitigate the impact of changes in foreign currency exchange rates. Foreign currency hedges are valued based on currency spot and forward rates and forward points. Hedge transactions are settled with the counterparty in cash. As of December 31, 2023, a hypothetical 10% change in foreign currency exchange rates on our forward contracts and options would not have a material impact on the Consolidated Financial Statements.
In addition, we are subject to market risk related to our net investments in our foreign subsidiaries. The net investment in foreign subsidiaries as of December 31, 2023 was $55.5 million. The impact of such market risk exposures as a result of foreign exchange rate fluctuations has not historically been material to us.
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