Entera Bio Ltd. 10-K

Item 7A. Quantitative and Qualitative Disclosures about Market Risk In the ordinary course of our operations, we are exposed to certain market risks. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of foreign currency exchange rates. Foreign Currency Exchange Risk Our functional currency and reporting currency is the U.S. dollar. Although a substantial portion of our expenses (mainly salaries and related costs) are denominated in NIS, accounting for 25%, 32% and 31% of our expenses in the years ended December 31, 2021, 2020 and 2019, respectively, our revenues were generated under agreement denominated in U.S. dollars and our proceeds from the Amgen Agreement, share issuance from our 2019 private placement, our ATM programs and exercise of warrants and options, which have been the main source of our financing, are denominated in U.S. dollars. Fluctuations in the NIS to U.S. dollar exchange rate may affect our results because some of our assets and liabilities are linked to the NIS, and a portion of our operating expenses are denominated in NIS. In the future, we also may be exposed to additional currency fluctuations against the U.S. dollar. See “Item 1.A.—Risk Factors— Risks Relating to Our Incorporation and Location in Israel—Our business is subject to currency exchange risk and fluctuations between the U.S. dollar and other currencies may negatively affect our earnings and results of operations.” 90 A decrease in value of the NIS in relation to the U.S. dollar has the effect of reducing the U.S. dollar amount of our expenses or payables that are payable in NIS, unless those expenses or payables are linked to the U.S. dollar. Conversely, any appreciation of the NIS in relation to the U.S. dollar has the effect of increasing the U.S. dollar value of our unlinked NIS expenses, which would have a negative impact on our financial results. In 2021, the value of the NIS appreciated against the U.S. dollar by 3.27%, which appreciation was partially offset by inflation in Israel of 2.8%. In 2020, the value of the NIS appreciated against the U.S. dollar by 6.97%, which appreciation was partially offset by inflation in Israel of approximately 0.7% . Because exchange rates between the U.S. dollar and the NIS (as well as between the U.S. dollar and other currencies) fluctuate continuously, such fluctuations have an impact on our results and period-to-period comparisons of our results. The effects of foreign currency re-measurements are reported in our statements of operations. We will continue to monitor exposure to currency fluctuations. We do not hedge our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations. Inflation Risk We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last two fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through hedging transactions. Our inability or failure to do so could harm our business, financial condition and results of operations. 91