The Statistical Measurement of Financial Derivatives


.The Statistical Measurement of Financial Derivatives.
Robert M. Heath

Over recent years, national statisticians have requested clarification and
amplification of the international standards for the statistical measurement of
financial derivatives. This paper meets that request. The main clarifications
and changes the paper makes to the 1993 System of National Accounts (1993 SNA)
and fifth edition of the IMF.s Balance of Payments Manual (BPM5) were approved
by the Inter-Secretariat Working Group on National Accounts and the IMF
Committee on Balance of Payments Statistics in October 1997.

In many respects, the key recommendations contained in the 1993 SNA and BPM5
remain unchanged: financial derivatives should be treated as financial assets,
and transactions in them should, in general, be treated as separate
transactions, rather than as integral parts of the value of underlying
transactions or financial assets to which they may be linked as hedges.
Nonetheless, a consensus emerged among statisticians that over-the-counter
forward-type contracts, along with futures and options, which are explicitly
covered in the 1993 SNA and BPM5, should be regarded as financial assets This
consensus is reflected in the paper.

The description of financial derivatives in the paper emphasizes their nature
as financial instruments that are linked to a specific financial instrument or
indicator or commodity and through which specific financial risks can be traded
in financial markets in their own right.

Regarding specific instruments, the paper concludes that interest rate swaps
and forward rate agreements should be recognized as financial assets, and that
net cash settlement payments in these contracts and the interest element of
cross-currency interest rate swaps should be classified as financial
transactions rather than as property income flows as recommended in the 1993
SNA. The paper sets out the treatment of foreign exchange forward-type
derivative contracts, credit derivatives, and embedded derivatives.
Clarification of the treatment of margin payments and a glossary of terms are