We are looking at the asset section of Goldman Sachs' balance sheet here and we're gonna take a look in detail at one line which is called financial instruments owned at fair value. It's a big number, it's $296 billion.

Looking at the notes, we have a table which explains that balance and you'll notice there are two columns here, financial instruments owned but not yet purchased which is a liability in the balance sheet and represents Goldman's short selling activities and financial instruments owned which is Goldman owned these instruments on a long basis and this is the focus of our session. Looking at the table, you can see from each line item that there is a good spread over all the different types of financial instruments. However, if we were to pick out a focus, it seems that Goldman has more focus on the following instruments. Government bonds and government agency bonds, corporate loans, equities, and derivatives.

Looking again at the notes we can see that the financial instruments owned and and financial instruments sold but not yet purchased have resulted in gains and losses principally recorded under market making. And if we turn to the right of the screen we have the top part of Goldman's income statement. This gives us some context for the significance of Goldman's market making activity. In fact, we can see that it makes up 35% of their non-interest revenues. A word of caution however, at this level of detail, it's quite difficult to do any further meaningful profitability analysis, as many of the transactions may well be connected to a wider set of transactions or related to hedging transactions. But you get the idea that this is connected to the market making activity which is both owning instruments on a long-term basis and also short selling. Let's now think about the broad classifications for financial instruments under US gap. And of course, we're still thinking about the financial instruments owned at fair Value sitting on Goldman's balance sheet, which we decided related to market making. We know that they're held at fair value, so there is no prospect of them being held to maturity, and in fact we know that they're part of Goldman's market making activities, so they're certainly not gonna fall within the residual available for sale category. This means that any changes in fair value will be recognized directly in the P & L. You may in fact recall that we've already seen the $9.9 billion market making gain within non-interest revenues on Goldman's income statement. Finally, let's think about how Goldman determines fair value. If we, again, look at the notes to Goldman's accounts we are being told that when arriving at fair value Goldman makes reference to the market price with financial assets being marked to bid prices. But if you think about it, that would rely on there being an active market for all financial instruments it holds. In fact, when arriving at fair value, Goldman makes reference to the fair value hierarchy where the asset being fair valued is quoted in an active market it is set to sit at level one in the hierarchy. This provides us with the most confident indication of fair value. If an active market is unavailable, we're at level two with the fair valuation being arrived at by referring to similar assets. If we can't make reference to similar assets then we're at level three, which required us to build a discounted cashflow to arrive at the fair value. Clearly, this gives us the least confident valuation.