GOLD RESERVE LTD 10-K

Item 7A. Quantitative and Qualitative Disclosures about Market Risk The carrying amounts for cash and cash equivalents, marketable securities, deposits, advances and other, accrued interest and accounts payable and accrued expenses on the balance sheet approximate fair value because of the immediate or short-term maturity of these instruments. Fair value estimates are made at the balance sheet date based on relevant market information but involve uncertainties and therefore cannot be determined with precision. The Company currently does not enter into any hedging transactions. The Company is exposed to various risks including credit risk, liquidity risk, currency risk and interest rate risk as described below which are substantially the same as the preceding period: a) Credit risk is the risk that a counterparty will fail to meet its obligations to the Company. The Company’s primary exposure to credit risk is through its cash and cash equivalents and restricted cash balances. The Company diversifies its cash holdings into major Canadian and U.S. financial institutions and corporations. - 24 - b) Liquidity risk is the risk that an entity will encounter difficulty in meeting its obligations associated with its financial liabilities. The Company has historically managed this risk by maintaining adequate cash balances through equity and debt offerings to meet its obligations. With respect to the convertible notes, the holders have the option to require the Company to repurchase the notes on June 15, 2012, for the principal amount of the notes plus unpaid interest and the Company may satisfy this obligation, in whole or in part, by delivering Common Shares. The following table presents the Company’s payments due on accounts payable and accrued expenses and its undiscounted interest and principal payments due on its convertible notes, based on the estimate that the term of the notes will end on June 15, 2012. If the notes were to reach their contractual maturity date of June 15, 2022, additional interest payments would amount to $56.3 million over the additional ten year term of the notes. Payments due by Period Total Less than 1 Year 1-3 Years More Than 5 Years AP and accruals $1,633,150 $1,633,150 – – Interest 8,443,793 $5,629,195 2,814,598 Principal 102,349,000 – 102,349,000 – Total $112,425,943 $7,262,345 $105,163,598 – c) Transactions denominated in foreign currency are exposed to exchange rate fluctuations which have an impact on the statement of operations. The Company’s cash and other monetary assets and liabilities that are held in Venezuelan and Canadian currency are subject to fluctuations against the US dollar. A 10% weakening of those currencies against the US dollar would have increased (decreased) the Company’s net loss from the translation of foreign currency denominated financial instruments, as at December 31, 2010 and 2009, by the amounts shown below. 2010 2009 Venezuelan Bolívar $ (38,365) $ 60,766 Canadian Dollar (11,363) (10,894) Total $ (49,728) $ 49,872 The Company limits the amount of currency held in non-U.S dollar accounts and does not actively use derivative instruments to limit its exposure to fluctuations in foreign currency rates. d) The Company may be subject to the risk that changes in market interest rates will cause fluctuations in the fair values of its financial instruments. Cash and cash equivalents earn floating market rates of interest. Other current financial assets and liabilities are generally not exposed to this risk because of their immediate or short-term maturity. The interest rate on the Company’s convertible notes is fixed and therefore the interest payments are not subject to changes in market rates of interest. - 25 -