QUALITATIVE DISCLOSURE ON MARKET RISK Our consolidated financial statements are prepared in conformity with IFRS, as issued by the IASB. We are exposed to a variety of risks in the ordinary course of our business, including, but not limited to, interest rate risk, foreign exchange risk, liquidity risk and credit risk, as discussed below. We regularly assess each of these risks to minimize any adverse effects on our business as a result of those factors. See Note 3 to our consolidated financial statements, which are included elsewhere in this Annual Report on Form 20-F, for further discussion of our exposure to these risks. Risk of Interest Rate Fluctuation Our investments consist primarily of cash, cash equivalents and short-term bank deposits. We may also invest in investment-grade marketable securities with maturities of up to three years, including commercial paper, money market funds, and government/non-government debt securities. The primary objective of our investment activities is to preserve principal, while maximizing the income that we receive from our investments without significantly increasing risk and loss. Our investments are exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. We manage this exposure by performing ongoing evaluations of our investments. Due to the short-term maturities of our investments to date, their carrying value has always approximated their fair value. It is our policy to hold investments to maturity in order to limit our exposure to interest rate fluctuations. Foreign Currency Exchange Risk Our reporting and functional currency is the dollar. However, we pay a significant portion of our expenses in NIS, and we expect this to continue. If the dollar materially depreciates against the NIS in the future, then the U.S. dollar cost of our operations in Israel would increase and there may be a negative impact on our results of operations. Although the revenues from our current out-licensing and co-development arrangements are payable in dollars and we expect our revenues from future any licensing arrangements to be denominated primarily in dollars, we are exposed to the currency fluctuation risks relating to the recording of our revenues in currencies other than dollars. To date, fluctuations in the exchange rates have not materially affected our results of operations or financial condition for the periods under review. From time to time, we have engaged in currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies, and we may continue to do so in the future. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.