Essay about Financial Statements Of Goldman Sachs Group

747 Words Sep 29th, 2014 3 Pages
Based on the consolidated financial statements of Goldman Sachs Group, there is a large proportion of OTC derivatives devoted on interest rates compare to the others. This means that interest rate risks have brought a large impact to the company. Hedge accounting was applied to manage the interest rate exposure of certain fixed-rate unsecured long-term and short-term borrowings and certain fixed-rate certificates of deposit. Many entities will face hefty collateral calls, which could lead to liquidity squeeze if there is an expected rise in interest rates. To hedge this interest rate risk, there are a few cost-effective derivatives that can be adopted:
Interest Rate Hedges
There is a way to generate income and reduce the impact of rising interest rates at the same time is by investing in strategies that hedge duration risk. Investing in duration-hedged share classes are more compelling when the investors expect the interest rates are likely to rise. It is for the investors who prefer to expose more to credit risk than interest rate risk. Here is a summary for the steps of duration hedging:
1. Buy fixed income bond (credit spread risk, interest rate risk and other risk)
2. Hedge out interest rate risk using derivatives
3. Residual risk (credit spread risk and other risks)
Certain interest rate swaps has been designated as fair value hedges. These swaps can reduce interest rate risk in fair value attributable to the relevant benchmark interest rate such as LIBOR. It can…

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