Goldman Sachs 2001 Annual Report Download - page 58

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page 56
GOLDMAN SACHS ANNUAL REPORT 2001
NOTE 4FINANCIAL INSTRUMENTS
Financial instruments, including both cash instruments and
derivatives, are used to manage market risk, facilitate customer
transactions, engage in proprietary transactions and meet
financing objectives. These instruments can be either executed
on an exchange or negotiated in the OTC market.
Transactions involving financial instruments sold, but not yet
purchased, generally entail an obligation to purchase a financial
instrument at a future date. The firm may incur a loss if the mar-
ket value of the financial instrument subsequently increases prior
to the purchase of the instrument.
Fair Value of Financial Instruments
The following table sets forth the firm’s total financial instruments owned, including those pledged as collateral, at fair value, and
financial instruments sold, but not yet purchased, at fair value:
AS OF NOVEMBER
2001 2000
(IN MILLIONS) ASSETS LIABILITIES ASSETS LIABILITIES
Commercial paper, certificates of deposit and time deposits $ 1,351 $ — $ 866 $ —
U.S. government, federal agency and sovereign obligations 31,173 18,606 22,926 21,483
Corporate debt 16,697 6,453 13,348 4,090
Equities and convertible debentures 20,075 12,201 21,481 8,829
State, municipal and provincial obligations 771 — 494 —
Derivative contracts 38,521 36,660 34,627 37,815
Physical commodities 297 797 432 677
Total $108,885 $74,717 $94,174 $72,894
these factors. Derivatives may involve future commitments
to purchase or sell financial instruments or commodities, or to
exchange currency or interest payment streams. The amounts
exchanged are based on the specific terms of the contract with
reference to specified rates, securities, commodities or indices.
Derivative contracts exclude certain cash instruments, such as
mortgage-backed securities, interest-only and principal-only
obligations, and indexed debt instruments, that derive their val-
ues or contractually required cash flows from the price of some
other security or index. The firm has elected to include com-
modity-related contracts in its derivative disclosure, although
not required to do so, as these contracts may be settled in cash
or are readily convertible into cash.
Credit Concentrations
Credit concentrations may arise from trading, underwriting and
securities borrowing activities and may be impacted by changes
in economic, industry or political factors. As of November 2001
and 2000, U.S. government and federal agency obligations rep-
resented 7% and 6%, respectively, of the firm’s total assets. In
addition, most of the firm’s securities purchased under agree-
ments to resell are collateralized by U.S. government, federal
agency and other sovereign obligations.
Derivative Activities
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