Siemens 2007 Annual Report Download - page 294

294 Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts)
Equity price risk
Siemens’ investment portfolio consists of direct and indirect investments in pub-
licly traded companies held for purposes other than trading. These participations
result from strategic partnerships, spin-offs, IPOs of strategic venture capital
investments or compensation from M&A transactions.
The equity investments are monitored based on their current market value,
affected by the fl uctuations in the volatile stock markets worldwide. The market
value of Siemens’ portfolio as of September 30, 2007 was €197, a reduction of €19
compared to September 30, 2006.
An adverse move in equity prices of 20% as of September 30, 2007 would
reduce the value of Siemens’ equity investments by €39 compared to €43 the year
before, meaning that the equity price risk has slighty decreased year-over-year.
Foreign currency exchange rate risk
Transaction risk and currency management
Siemens’ international operations expose the Company to foreign-currency
exchange risks in the ordinary course of business. The Company employs various
strategies discussed below involving the use of derivative fi nancial instruments
to mitigate or eliminate certain of those exposures.
Foreign exchange rate fl uctuations may create unwanted and unpredictable
earnings and cash fl ow volatility. Each Siemens unit conducting business with
international counterparties that leads to future cash fl ows denominated in a cur-
rency other than its functional currency is exposed to the risk from changes in
foreign exchange rates. The risk is mitigated by closing all types of business
transactions (sales and procurement of products and services as well as invest-
ment and fi nancing activities) mainly in the functional currency. In addition, the
foreign currency exposure is partly balanced by purchasing of goods, commodi-
ties and services in the respective currencies as well as production activities and
other contributions along the value chain in the local markets.
Operating units are prohibited from borrowing or investing in foreign curren-
cies on a speculative basis. Intercompany fi nancing or investments of operating
units are preferably done in their functional currency or on a hedged basis.
Siemens has established a foreign exchange risk management system that has
an established track record for years. Each Siemens unit is responsible for record-
ing, assessing, monitoring, reporting and hedging its foreign currency transac-
tion exposure. The Group-wide binding guideline developed by the Corporate
Finance department, provides the concept for the identifi cation and determination
of the single net currency position and commits the units to hedge it in a narrow
band: at least 75% but no more than 100% of their net foreign currency exposure.