Sprott Physical Silver Trust Notes to the Annual Financial Statements  December 31, 2014 Risk mitigation Excessive risk concentration Price risk Interest rate risk Currency risk Credit risk Liquidity risk The Trust has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk management  philosophy. The discussion below clarifies the Trust’s management of various risks: The Trust’s risk is concentrated in physical silver bullion, whose value constitutes 99.9% of total equity as at December 31, 2014 (99.2% as at  December 31, 2013). Price risk arises from the possibility that changes in the market price of the Trust’s investments, which consist almost entirely of silver bullion,  will result in changes in fair value of such investments. If the market value of silver increased by 1%, with all other variables held constant, this would have increased total equity and comprehensive  income by approximately $7.7 million (December 31, 2013: $9.6 million); conversely, if the value of silver bullion decreased by 1%, this  would have decreased total equity and comprehensive income by the same amount. Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. The Trust does not hedge  its exposure to interest rate risk as that risk is minimal. Currency risk arises from the possibility that changes in the price of foreign currencies will result in changes in carrying value. The Trust’s  assets, substantially all of which consist of an investment in silver bullion, are priced in U.S. dollars. Some of the Trust’s expenses are payable  in Canadian dollars. Therefore, the Trust is exposed to currency risk, as the value of its liabilities denominated in Canadian dollars will  fluctuate due to changes in exchange rates. Most of such liabilities, however, are short term in nature and are not significant in relation to the  net assets of the Trust, and, as such, exposure to foreign exchange risk is limited. The Trust does not enter into currency hedging transactions. As at December 31, 2014, approximately $213,000 (December 31, 2013: $nil) of the Trust’s liabilities were denominated in Canadian dollars. Credit risk arises from the potential that counterparties will fail to satisfy their obligations as they come due. The Trust primarily incurs credit  risk when entering into and settling silver bullion transactions. It is the Trust’s policy to only transact with reputable counterparties. The  Manager closely monitors the creditworthiness of the Trust’s counterparties, such as bullion dealers, by reviewing their financial statements,  when available, regulatory notices and press releases. The Trust seeks to minimize credit risk relating to unsettled transactions in silver bullion  by only engaging in transactions with bullion dealers with high creditworthiness. The risk of default is considered minimal, as payment for  silver bullion, is only made against the receipt of the bullion by the custodian. Liquidity risk is defined as the risk that the Trust will encounter difficulty in meeting obligations associated with financial liabilities and  redemptions. Liquidity risk arises because of the possibility that the Trust could be required to pay its liabilities earlier than expected. The  Trust is also subject to redemptions for both cash and silver bullion on a regular basis. The Trust manages its obligation to redeem units when  required to do so and its overall liquidity risk by only allowing for redemptions monthly, which require 15-day advance notice to the Trust.  The Trust’s liquidity risk is minimal, since its primary investment is physical silver bullion, which trades in a highly liquid market. All of the  Trust’s financial liabilities, including due to brokers, accounts payable and management fees payables have maturities of less than  three months. 20