Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. Our exposure to market risk for changes in interest rates relates to our cash, cash equivalents, and outstanding debt. As of October 31, 2020, all of our cash, cash equivalents, and debt were at short-term variable or fixed interest rates. While par value generally approximates fair value on variable instruments, rising interest rates over time would increase both our interest income and our interest expense. The primary objective of our investment activities is to preserve the principal while at the same time maximizing yields without significantly increasing the risk. To achieve this objective, we maintain our portfolio of investments in a mix of tax-exempt and taxable instruments that meet high credit quality standards, as specified in our investment policy. None of these investments are held for trading purposes. Our policy also limits the amount of credit exposure to any one issue, issuer and type of instrument.

Our cash equivalents and debt by fiscal year of expected maturity and average interest rates as of October 31, 2020 are as follows:

Maturing in Year Ending October 31,

2021

2022

2023

2024

2025 and thereafter

Total

Fair Value

(in thousands)

Cash & Cash equivalents

$

1,097,122

$

1,097,122

$

1,097,122

Approx. average interest rate

0.13

%

Short-term debt (variable rate):

Term Loan

$

27,187

$

75,000

$

102,187

$

102,187

Average interest rate

LIBOR +1.125%

Credit Facility in China

$

25,823

$

25,823

$

25,823

Average interest rate

LPR + 0.74% of such rate

Foreign Currency Risk. We operate internationally and are exposed to potentially adverse movements in currency exchange rates. The functional currency of the majority of our active foreign subsidiaries is the foreign subsidiary's local currency. We enter into hedges in the form of foreign currency forward contracts to reduce our exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions including: (1) certain assets and liabilities, (2) shipments forecasted to occur within approximately one month, (3) future billings and revenue on previously shipped orders, and (4) certain future intercompany invoices denominated in foreign currencies. The foreign currency contracts are carried at fair value and denominated in various currencies as listed in the tables below. The duration of forward contracts usually ranges from one month to 22 months. See Note 2 and Note 6 of Notes to Consolidated Financial Statements for a description of our accounting for foreign currency contracts.

The success of our hedging activities depends upon the accuracy of our estimates of various balances and transactions denominated in non-functional currencies. To the extent our estimates are correct, gains and losses on our foreign currency contracts will be offset by corresponding losses and gains on the underlying transactions. For example, if the Euro were to depreciate by 10% compared to the U.S. dollar prior to the settlement of the Euro forward contracts listed in the table below providing information as of October 31, 2020, the fair value of the contracts would decrease by approximately $7.6 million, and we would be required to pay approximately $7.6 million to the counterparty upon contract maturity. At the same time, the U.S. dollar value of our Euro-based expenses would decline, resulting in positive cash flow of approximately $7.6 million that would offset the loss and negative cash flow on the maturing forward contracts.

Net unrealized gain of approximately $3.4 million and net unrealized loss of $4.5 million, net of tax, are included in accumulated other comprehensive income (loss) in our consolidated balance sheets as of October 31, 2020 and 2019, respectively.

If estimates of our balances and transactions prove inaccurate, we will not be completely hedged, and we will record a gain or loss, depending upon the nature and extent of such inaccuracy.

We do not use foreign currency forward contracts for speculative or trading purposes. We enter into foreign exchange forward contracts with financial institutions and have not experienced nonperformance by counterparties. Further, we anticipate performance by all counterparties to such agreements.

Information about the gross notional values of our foreign currency contracts as of October 31, 2020 was as follows:

Gross Notional

Amount in

U.S. Dollars

Average

Contract

Rate

(in thousands)

Forward Contract Values:

Japanese yen

$

472,000

104.706

Indian rupee

138,080

76.984

Euro

76,076

1.141

Hungarian forint

70,000

308.939

Canadian dollar

45,658

1.339

Chinese renminbi

43,130

6.725

Taiwanese dollar

38,735

28.751

British pound sterling

21,826

1.262

Korean won

21,547

1,183.202

Armenian dram

21,243

479.960

Israel shekel

20,116

3.369

Singapore dollar

8,277

1.359

Swiss franc

4,545

0.909

$

981,233

Equity Risk. We had approximately $13.2 million and $11.0 million of non-marketable equity securities in privately held companies as of October 31, 2020 and 2019, respectively. The investments that we do not have the ability to exercise significant influence are accounted using the measurement alternative when the fair value of the investment is not readily determinable. Securities accounted for as equity method investments are recorded at cost plus the proportional share of the issuers' income or loss, which is recorded in the other income (expense), net. Investments are written down to the fair value when an event or circumstance which impacts the fair value of these investments indicates that the investments are impaired and the fair value of the investments is less than the carrying value. None of our investments are held for speculation purposes.