Goldman Sachs 2000 Annual Report Download - page 45

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potential credit exposure to individual counterparties and
on an aggregate basis to counterparties and their affiliates.
The systems also provide management, including the
Firmwide Risk and Credit Policy committees, with information
regarding overall credit risk by product, industry sector,
country and region.
Derivative Contracts
Derivative contracts are financial instruments, such as
futures, forwards, swaps or option contracts, that derive their
value from underlying assets, indices, reference rates or a
combination of these factors. Derivative instruments may
be entered into by Goldman Sachs in privately negotiated
contracts, which are often referred to as over-the-counter
derivatives, or they may be listed and traded on an exchange.
Most of our derivative transactions are entered into for
trading purposes. We use derivatives in our trading activi-
ties to facilitate customer transactions, to take proprietary
positions and as a means of risk management. We also enter
into nontrading derivative contracts to manage the interest
rate and currency exposure on our long-term borrowings.
Derivatives are used in many of our businesses, and we
believe that the associated market risk can only be under-
stood relative to the underlying assets or risks being
hedged, or as part of a broader trading strategy.
Accordingly, the market risk of derivative positions is
managed with all of our other nonderivative risk.
Derivative contracts are reported on a net-by-counter-
party basis on our consolidated statements of financial
condition where management believes a legal right of
setoff exists under an enforceable netting agreement. For
an over-the-counter derivative, our credit exposure
is directly with our counterparty and continues until the
maturity or termination of such contract.
43