Goldman Sachs 2015 Annual Report Download - page 161

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Net Investment Hedges
The firm seeks to reduce the impact of fluctuations in
foreign exchange rates on its net investments in certain non-
U.S. operations through the use of foreign currency forward
contracts and foreign currency-denominated debt. For
foreign currency forward contracts designated as hedges,
the effectiveness of the hedge is assessed based on the
overall changes in the fair value of the forward contracts
(i.e., based on changes in forward rates). For foreign
currency-denominated debt designated as a hedge, the
effectiveness of the hedge is assessed based on changes in
spot rates.
For qualifying net investment hedges, the gains or losses on
the hedging instruments, to the extent effective, are
included in “Currency translation” within the consolidated
statements of comprehensive income.
The table below presents the gains/(losses) from net
investment hedging.
Year Ended December
$ in millions 2015 2014 2013
Foreign currency forward contract hedges $695 $576 $150
Foreign currency-denominated debt hedges (9) 202 470
The gain/(loss) related to ineffectiveness and the gain/(loss)
reclassified to earnings from accumulated other
comprehensive income/(loss) were not material for
2015, 2014 or 2013.
As of December 2015 and December 2014, the firm had
designated $2.20 billion and $1.36 billion, respectively, of
foreign currency-denominated debt, included in
“Unsecured long-term borrowings” and “Unsecured short-
term borrowings,” as hedges of net investments in non-U.S.
subsidiaries.
Cash Flow Hedges
During 2013, the firm designated certain commodities-
related swap and forward contracts as cash flow hedges.
These swap and forward contracts hedged the firm’s
exposure to the variability in cash flows associated with the
forecasted sales of certain energy commodities by one of the
firm’s consolidated investments. During the fourth quarter
of 2014, the firm de-designated these swaps and forward
contracts as cash flow hedges as it became probable that the
hedged forecasted sales would not occur.
Prior to de-designation, the firm applied a statistical
method that utilized regression analysis of changes in
forecasted cash flows when assessing hedge effectiveness,
subject to the same quantitative criteria as the firm’s fair
value hedging relationships described above.
The effective portion of the gains/(losses) recognized on
these cash flow hedges were included in “Cash flow
hedges” within the consolidated statements of
comprehensive income, and gains/(losses) reclassified to
earnings from accumulated other comprehensive income
and gains/(losses) related to hedge ineffectiveness were
included in “Other principal transactions” within the
consolidated statements of earnings. Such gains/(losses)
were not material for 2014 and 2013. There were no gains/
(losses) excluded from the assessment of hedge effectiveness
for 2014 and 2013.
Goldman Sachs 2015 Form 10-K 149