This excerpt taken from the SCOP 20-F filed Apr 14, 2008.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosure of Market Risks
Exchange rate risk
Our foreign currency exposure gives rise to market risk associated with exchange rate movements of the U.S. dollar, our functional and reporting currency, against the NIS and the Euro. In 2007, most of our revenues were denominated in U.S. dollars and we expect that a significant portion of our revenues will continue to be denominated in U.S. dollars, with a smaller portion denominated in Euros and other currencies. Our expenses to date have been incurred, approximately one third, in U.S. dollars or currencies linked to the U.S. dollar and two-thirds in NIS. As a result, we are exposed to risk of devaluation of the U.S. dollar in relation to the NIS and other currencies. In that event, the dollar cost of our operations in countries other than the U.S. will increase and our dollar measured results of operations will be adversely affected. During 2007, the U.S. dollar devaluated against the NIS by 9%.
From time to time, we have engaged in currency hedging transactions to mitigate the risks associated with fluctuations in currency exchange rates. In the future, if we do not successfully engage in currency hedging transactions, our results of operations may be subject to potential losses from fluctuations in foreign currency exchange rates.
Interest rate risk
Fluctuations in interest rates may affect our interest income and expenses and the fair market value of our investments. As of December 31, 2007, we had $23.1 million in cash and cash equivalents which earned interest at an average rate equal to 1 month LIBOR plus 0.04% per annum. We also had $7.2 million under short-term bank deposits which earned interest at 3 months LIBOR plus 0.5% per annum. In November 2007, we invested $5.2 million in trading securities (Israeli Government bonds denominated in New Israeli Shekels), of which $3.1 million is subject to a fixed interest rate of 4.5%, $1 million at a variable rate of 4.58% and $1.1 million is subject to a fixed rate of 3.2% plus the CPI differential between the purchase and maturity date. The trading securities are expected to mature at dates ranging from November 2008 until June 2010.
The primary objective of our investment activities is to preserve principal and provide liquidity while maximizing the income that we receive from our investments. 97% of our investments are subject to fixed interest rates and therefore, for the period that the investments are held, we expect the impact of interest rate fluctuations to be minimal.