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management’s฀discussion฀and฀analysis
58฀฀฀G O L D M A N ฀ S A C H S ฀ 2 004฀ A N N U A L ฀ R E P O RT
The following tables set forth the daily trading VaR:
average฀daily฀var(1)(2)
(IN฀MILLIONS)฀ YEAR฀ENDED฀NOVEMBER
RISK฀CATEGORIES฀ 2004฀ 2003฀ 2002
Interest rates $฀36 $฀38฀ $฀34
Equity prices 32 27฀ 22
Currency rates 20 18฀ 16
Commodity prices 20 18฀ 12
Diversification effect(3) (41) (43)฀ (38)
Firmwide $฀67 $฀58฀ $฀46
(1)฀฀During฀the฀fourth฀quarter฀of฀2003,฀we฀made฀certain฀changes฀to฀our฀model฀for฀calculating฀VaR.฀The฀effect฀of฀these฀changes฀was฀not฀material฀and,฀accordingly,฀
prior฀periods฀have฀not฀been฀adjusted.
(2)฀฀During฀the฀second฀quarter฀of฀2004,฀we฀began฀to฀exclude฀from฀our฀calculation฀distressed฀asset฀portfolios฀in฀FICC฀that฀cannot฀be฀properly฀measured฀in฀VaR.฀The฀
effect฀of฀excluding฀these฀portfolios฀was฀not฀material฀to฀prior฀periods฀and,฀accordingly,฀such฀periods฀have฀not฀been฀adjusted.฀For฀a฀further฀discussion฀of฀the฀market฀
risk฀associated฀with฀these฀portfolios,฀see฀“฀–฀Distressed฀Asset฀Portfolios”฀below.
(3)฀฀Equals฀the฀difference฀between฀firmwide฀VaR฀and฀the฀sum฀of฀the฀VaRs฀for฀the฀four฀risk฀categories.฀This฀effect฀arises฀because฀the฀four฀market฀risk฀categories฀
are฀not฀perfectly฀correlated.
Our daily VaR increased to $66 million as of November 2004
from $63 million as of November 2003. The increase was pri-
marily due to higher levels of exposure to commodity prices,
partially offset by reduced exposure to currency rates and equity
prices, as well as reduced volatilities, particularly in interest rate
and equity assets.
BES฀•฀Phone฀(201)฀635-5240฀฀•฀FAX฀(201)฀635-5199
BPX/S10829฀•฀Flow฀16฀•฀Proof฀12฀•฀2/4/05฀•RUSH
Our average daily VaR increased to $67 million in 2004 from
$58 million in 2003. The increase was primarily due to higher
levels of exposure to equity prices, currency rates and commod-
ity prices, partially offset by reduced exposures to interest rates,
as well as reduced volatilities, particularly in interest rate and
equity assets. The increase in average daily VaR to $58 million
in 2003 from $46 million in 2002 was due to higher levels of
exposure in all product categories, partially offset by reduced
volatilities, particularly in equity assets.
daily฀var(1)
(IN฀MILLIONS)฀ AS฀OF฀NOVEMBER฀ YEAR฀ENDED฀NOVEMBER฀2004
RISK฀CATEGORIES฀ 2004฀ 2003฀ HIGH฀ LOW
Interest rates $฀28 $฀35฀ $64฀ $24
Equity prices 25 33฀ 45฀ 18
Currency rates 18 24฀ 31฀ 6
Commodity prices 35 11฀ 36฀ 11
Diversification effect(2) (40) (40)
Firmwide $฀66 $฀63฀ 88฀ 49
(1)฀฀
During฀the฀second฀quarter฀of฀2004,฀we฀began฀to฀exclude฀from฀our฀calculation฀distressed฀asset฀portfolios฀in฀FICC฀that฀cannot฀be฀properly฀measured฀in฀VaR.฀The฀
effect฀of฀excluding฀these฀portfolios฀was฀not฀material฀to฀prior฀periods฀and,฀accordingly,฀such฀periods฀have฀not฀been฀adjusted.฀For฀a฀further฀discussion฀of฀the฀market฀
risk฀associated฀with฀these฀portfolios,฀see฀“฀–฀Distressed฀Asset฀Portfolios”฀below.
(2)฀฀
Equals฀the฀difference฀between฀firmwide฀VaR฀and฀the฀sum฀of฀the฀VaRs฀for฀the฀four฀risk฀categories.฀This฀effect฀arises฀because฀the฀four฀market฀risk฀categories฀
are฀not฀perfectly฀correlated.