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Notes to Consolidated Financial Statements 295

(in millions of €, except where otherwise stated and per share amounts)

Notes to Consolidated Financial Statements

In addition, the Corporate Finance department provides a framework of the orga-

nizational structure necessary for foreign currency exchange management, pro-

poses hedging strategies and deﬁ nes the hedging instruments available to the

entities: forward contracts, currency put and call options and stop-loss orders.

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

by SFS as an exclusive service provider for all Siemens entities on behalf of Corpo-

rate Treasury. SFS executes hedging instruments used for hedge accounting rela-

tionships individually with external counterparts. For other hedging purposes

Siemens has a Company-wide portfolio approach which generates 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 additional information relating to the effect of this

Company-wide portfolio approach on the Consolidated Financial Statements, as

well as for a discussion of hedging activities employed to mitigate or eliminate

foreign currency exchange risks, please refer to Note 31.

The foreign exchange rate sensitivity is calculated by aggregation of the net

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

Groups and Corporate Treasury. The values and risks are the unhedged positions

multiplied by an assumed 10% appreciation of the Euro against all other curren-

cies. As of September 30, 2007, a parallel 10% negative shift of all foreign curren-

cies would have resulted in a decline of €47 in future cash ﬂ ows compared to a

decline of €38 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. Since the Company’s foreign currency

inﬂ ows exceed the outﬂ ows, an appreciation of the Euro against foreign curren-

cies 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.

Siemens deﬁ nes 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 the exposed

Siemens’ entities.