Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Risk Management
We are exposed to market risk from changes in foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. We utilized derivative financial instruments to hedge economic exposures, as well as reduce earnings and cash flow volatility resulting from shifts in market rates.
Recent market events have not caused us to materially modify or change our financial risk management strategies with respect to our exposures to interest rate and foreign currency risk. Refer to Note 16 - Financial Instruments in the Consolidated Financial Statements for additional discussion on our financial risk management.
Foreign Exchange Risk Management
Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates at December 31, 2023, it would not significantly change the value of foreign currency-denominated assets and liabilities as all material currency asset and liability exposures were economically hedged as of December 31, 2023. A 10% appreciation or depreciation of the U.S. Dollar against all currencies from the quoted foreign currency exchange rates at December 31, 2023 would have an impact on our cumulative translation adjustment portion of equity of approximately $320 million. The net amount invested in foreign subsidiaries and affiliates, primarily Xerox Limited and Xerox Canada Inc. and translated into U.S. Dollars using the year-end exchange rates, was approximately $3.2 billion at December 31, 2023.
Interest Rate Risk Management
The consolidated average interest rate associated with our total debt for 2023, 2022 and 2021 approximated 6.0%, 5.3%, and 4.8%, respectively. Interest expense includes the impact of our interest rate derivatives.
Nearly all of our customer-financing assets earn fixed rates of interest. The interest rates on a significant portion of the Company's term debt are fixed.
As of December 31, 2023, of our total principal debt of $3,311 million, a total of $911 million of secured borrowings carried variable interest rates, of which $729 million has a variable interest rate based on SOFR/CDOR plus a spread and the remaining $182 million has a variable interest rate based on the financial institution's cost of funds plus a spread.
The fair market values of our fixed-rate financial instruments are sensitive to changes in interest rates. At December 31, 2023, a 10% increase in market interest rates would reduce the fair values of such financial instruments by approximately $63 million.
As of December 31, 2023, we had $911 million of secured borrowings with a variable rate and $463 million of variable to fixed rate interest rate caps and swaps. As of December 31, 2023, $290 million of the $463 million of derivatives were designated as cash flow hedges. A 10% change in the yield curve, representing 20 - 30 basis points, will increase the derivative mark-to-market by approximately $1 million.
Refer to Note 15 - Debt in the Consolidated Financial Statements for additional information regarding our interest expense and our secured borrowings and Note 16 - Financial Instruments in the Consolidated Financial Statements for additional information regarding our interest rate caps and swaps.