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184 Management’s discussion and analysis

The execution of the hedging transactions in the global ﬁ nancial markets is done

by SFS as exclusive service provider for all Siemens entities on behalf of Corporate

Treasury. SFS executes hedging instruments used for hedge accounting relation-

ships individually with external counterparts. For other hedging purposes

Siemens has a Company-wide portfolio approach which generate a beneﬁ t from

any potential off-set of divergent cash ﬂ ows in the same currency, as well as opti-

mized transaction costs. For further information see “Notes to Consolidated

Financial Statements.”

We calculate foreign exchange rate sensitivity by aggregating the net foreign

exchange rate exposure of the Operations, Financing and Real Estate Groups and

Corporate Treasury. The values and risks disclosed here are the unhedged posi-

tions multiplied by an assumed 10% appreciation of the euro against all other

currencies. As of September 30, 2007, a parallel 10% negative shift of all foreign

currencies would have resulted in a decline of €47 million in future cash ﬂ ows

compared to a decline of €38 million the year before. Such decline in euro values

of future cash ﬂ ows might reduce the unhedged portion of revenues but would

also decrease the unhedged portion of cost of materials. Because our foreign cur-

rency inﬂ ows exceed our outﬂ ows, an appreciation of the euro against foreign

currencies, would have a negative ﬁ nancial impact to the extent that future sales

are not already hedged. Future changes in the foreign exchange rates can impact

sales prices and may lead to margin changes, the extent of which is determined by

the matching of foreign currency revenues and expenses.

We deﬁ ne foreign currency exposure generally as balance sheet items in

addition to ﬁ rm commitments which are denominated in foreign currencies, as

well as foreign currency denominated cash inﬂ ows and cash outﬂ ows from antici-

pated transactions for the following three months. This foreign currency expo-

sure is determined based on the respective functional currencies of our exposed

entities.

The tables below show the net foreign exchange transaction exposure by major

currencies as of September 30, 2007 and 2006. In some currencies we have both

substantial sales and costs, which have been off-set in the table:

September 30, 2007*

USD GBP Other Total

Gross balance sheet exposure 223 321 208 752

Thereof: Financial assets 7,858 3,642 4,769 16,269

Thereof: Financial liabilities (7,635) (3,321) (4,561) (15,517)

Gross exposure from ﬁ rm commitments

and anticipated transactions 3,730 392 1,193 5,315

Foreign exchange transaction exposure 3,952 713 1,398 6,063

Economically hedged exposure (3,893) (567) (1,132) (5,592)

Change in future cash ﬂ ows after hedging activities

resulting from a 10% appreciation of the Euro (6) (15) (27) (47)