RETALIX LTD.

Foreign Currency Risk
The majority of our revenues is denominated in U.S. Dollars and or linked to the U.S. dollar, and our financing is mostly in U.S. dollars, and thus the
U.S. dollar is our functional currency. However, some portions of our revenues are denominated in British Pounds Sterling, Euros, Australian Dollars and
New Israeli Shekels. This situation exposes us from time to time, to fluctuations between the exchange rates of the dollar and the NIS, the British Pound
Sterling, the Euro and the Australian Dollar. We hold most of our financial assets in dollar or dollar linked investment channels. In addition, we tend from
time to time, to enter into short-term forward inter-currency transactions in an attempt to maintain a similar level of assets and liabilities in any non-U.S.
Dollar currency and thus trying to offset exposures to inter-currency fluctuations.
The following table sets forth our non-dollar assets and liabilities as of December 31, 2005:
(in thousands)
Interest Rate Risk
Our interest expenses and income are sensitive to changes in interest rates, as all of our cash reserves and borrowings are subject to interest rate
changes. Most of our financial reserves are invested in short term interest-bearing deposits. The interest rate on these deposits as well as the interest rate on
most of our borrowings is linked to the London Interbank Offered Rate.
The policies under which our exposures to currency and interest rate fluctuations are managed is reviewed and supervised by our board of directors.
We manage these exposures by performing ongoing evaluations including on a timely basis.
ITEM 12 – DESCRIPTION OF SECURITIES OTHER THEN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13 – DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14 – MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
Currency Israeli Currency Other non-dollar currency
Assets $ 17,648 $ 14,503
Liabilities $ 19,122 $ 5,909
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