## Draft BPM7 Chapter 5 — Classifications of Financial Assets and Liabilities

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### A. Definitions of economic assets and liabilities
- Economic assets: resources over which ownership rights are enforced and that may entitle the owner to economic benefits (paragraph 5.2).
- Economic owner: party who bears risks and receives benefits of ownership; economic ownership may differ from legal ownership (paragraph 5.3).
- Enumerated economic benefits:
  - (a) the ability to use assets in production;
  - (b) generation of services (e.g., renting produced assets);
  - (c) generation of property income (interest, dividends);
  - (d) potential to sell and realize holding gains.
- Produced assets, nonproduced nonfinancial assets, and financial assets are recorded in goods and services, capital, and financial/IIP accounts respectively; focus of chapter is classification of financial assets and liabilities (paragraph 5.4).
- Economic asset classification examples: An1 produced assets (An11 fixed assets, An12 inventories, An13 valuables), An2 nonproduced assets (An21 natural resources, An22 contracts/leases/licenses, An23 goodwill/marketing assets), AF financial assets (see Table 5.3).

### B. Financial instruments; financial claims and assets
- Financial instruments: full range of financial contracts between institutional units; may give rise to financial claims or not (paragraph 5.5).
- Financial claims: instruments that give rise to an economic asset with a counterpart liability; equity is a financial claim (paragraph 5.6).
- Counterpart relationship: each financial claim has a corresponding liability; nonfinancial assets have no counterpart liability (paragraphs 5.7–5.8).
- Financial assets include financial claims and the gold bullion component of monetary gold: equity and investment fund shares; debt instruments; financial derivatives and employee stock options; monetary gold (paragraph 5.9).
- Crypto assets: included as financial assets only when they have a corresponding liability (paragraph 5.9).
- Instruments that do not give rise to financial assets: one-off guarantees not activated; unrealized commitments (lines of credit, loan commitments, letters of credit) (paragraphs 5.9 and 5.13).
- Contingent items and off-balance-sheet guidance:
  - Contingent assets/liabilities not recognized before conditions are fulfilled; significant contingent items may be disclosed (paragraph 5.10).
  - Equity, derivatives, index-linked instruments, insurance technical reserves, and provisions for standardized guarantees are recognized as financial assets/liabilities because the liability exists (paragraph 5.11).
  - One-off guarantees are contingent; provisions for calls under standardized guarantees are not contingent (paragraphs 5.12–5.13).
  - Lines of credit, letters of credit, loan commitments create no financial asset until funds are advanced; note issuance facilities create assets only when funds are provided (paragraph 5.13).
  - Accounting provisions and future revenue streams (future tax collections, royalties) are not recognized as financial assets (paragraph 5.14).

### C. Negotiability and securities
- Securities defined by negotiability—legal ownership transferable by delivery or endorsement; designed to be traded on exchanges or OTC (paragraph 5.15).
- Negotiability is a legal-form trait; negotiable securities may lack a liquid market (paragraph 5.15).

### D. Classification by instrument type (BPM7 approach)
- Three broad categories (paragraph 5.17):
  - (1) equity and investment fund shares;
  - (2) debt instruments;
  - (3) other financial assets and liabilities.
- Table 5.2 mapping instruments to income types (terms preserved):
  - Equity and investment fund shares
    - AF51 equity → D42 distributed income of corporations; D43 reinvested earnings; D41 interest
    - AF511+AF512 listed and unlisted shares → D421 dividends; D43 reinvested earnings; D41 interest
    - AF519 equity in international organizations and other equity → D422 Dividends and withdrawals from income of quasicorporations; D43 reinvested earnings; D41 interest
    - AF52 investment fund shares/units → D443 investment income attributable to investment fund shareholders (dividends, reinvested earnings, and imputed investment income)
  - Debt instruments
    - AF12 special drawing rights → D41 interest
    - AF2 currency and deposits → D41 interest
    - AF3 debt securities → D41 interest
    - AF4 loans → D41 interest
    - AF6 insurance, pension, and standardized guarantee schemes → D44 other investment income
    - AF81 Trade credit and advances → D41 interest
    - AF89 other accounts receivable/payable → D41 interest
  - Other financial assets and liabilities
    - AF11 monetary gold → D41 interest
    - AF7 financial derivatives and employee stock options → none
- Notes: reinvested earnings standard for direct investment equity; lending fees on equity securities, gold loans, gold swaps classified as interest; monetary gold consists of gold bullion and unallocated gold accounts; gold bullion has no counterpart liability (Table notes).

### E. Equity and investment fund shares
- Equity: property rights and residual claims after debt obligations (paragraph 5.19).
- Investment fund shares treated separately due to role in intermediation; reinvested earnings imputed for investment fund shares (paragraphs 5.20–5.21).
- Equity instruments: shares, stocks, participations, depository receipts; participating preferred shares are equity (paragraph 5.22).
- Depository receipts: certificates representing ownership of securities listed in other economies; ownership treated as direct ownership of underlying securities; underlying may be equity or debt (paragraph 5.23).
- Equity subcategories (paragraphs 5.24–5.27):
  - (a) listed shares;
  - (b) unlisted shares;
  - (c) equity in international organizations and other equity.
- Investment funds (paragraphs 5.28–5.30):
  - Funds issue shares or units; include MMFs and non-MMFs.
  - MMFs invest primarily in short-term money market securities; MMF shares can be functionally close to transferable deposits (paragraph 5.29).
  - If MMF shares included in broad money, record separately for reconciliation with monetary statistics (paragraph 5.29).
  - Investment funds may invest in debt securities, equity, commodity-linked investments, real estate, other funds, structured assets; asset-composition data useful where funds are significant (paragraph 5.30).

### F. Debt instruments — scope and characteristics
- Debt instruments require payment of principal and/or interest in the future; include SDRs, currency and deposits, debt securities, loans, insurance technical reserves, pension entitlements, provisions for calls under standardized guarantees, other accounts receivable/payable (paragraph 5.31).
- Debt vs equity: debt involves obligation to pay principal/interest via predefined formula; equity gives residual claim and return depends on issuer performance (paragraph 5.32).
- Maturity classification (original/remaining) is analytically significant for debt (paragraph 5.33).

### G. Special drawing rights (SDRs)
- SDRs: international reserve assets created by the IMF, allocated to members; held by monetary authorities and authorized institutions (paragraphs 5.34–5.35).
- SDR holdings: asset of holder; allocation recorded as incurrence of a liability of the receiving member because of repayment requirement and interest accrual (paragraph 5.35).
- Holdings and allocations shown gross (paragraph 5.35).
- Domestic recording arrangements vary; allocation increases a country’s reserve assets (section 5.XX).

### H. Currency and deposits
- Currency: notes and coins issued or authorized by central bank or governments; can be issued digitally (central bank digital currencies) (paragraph 5.36).
- Gold/commemorative coins: if not in active circulation, classified as goods; gold coins classified as monetary gold exception (paragraph 5.37).
- Foreign currency in circulation: asset of resident holder and liability of issuer; domestic transactions settled in foreign currency in circulation are domestic (paragraph 5.38).
- Deposits: claims on central bank, deposit-taking corporations, and sometimes others, represented by evidence of deposit; standard contract open to public at large; nominal value usually fixed in currency of denomination; can be index- or commodity-linked (paragraphs 5.39–5.40).
- Distinction loans vs deposits: if one party is a deposit-taking corporation and the other is not, classify as loan by both; deposit-taking corporation liability to another type is deposit by both (paragraph 5.40).
- Transferable deposits: exchangeable for currency on demand, directly usable for payments; overdraft from transferable deposit facility is a loan; include electronic money when liabilities of deposit-taking corporations (paragraph 5.41).
- Interbank positions: can be separate component of deposits; when uncertainty between loan and deposit record under deposits (paragraph 5.42).
- Other deposits: savings, fixed-term deposits, nonnegotiable certificates, negotiable certificates classified as debt securities; restricted deposits included; repurchase-agreement liabilities included in other deposits when part of broad money; repayable margins for derivatives included in other deposits when part of broad money (paragraph 5.43).
- Central bank swap arrangements: deposits include assets created under temporary exchange of deposits between central banks (section 5.XX).

### I. Debt securities
- Debt securities: negotiable instruments evidencing debt (bills, bonds, notes, negotiable CDs, commercial paper, debentures, asset-backed securities, money market instruments) (paragraph 5.44).
- Bills: unconditional rights to receive fixed sums on specified date; often issued at discounts (paragraph 5.44).
- Short-term securities examples: treasury bills, negotiable CDs, bankers’ acceptances, promissory notes, commercial paper (paragraph 5.44).
- Debt securities confer unconditional right to fixed or contractually determined variable payments; interest does not depend on debtor earnings (paragraph 5.44).
- Depository receipts with underlying debt securities are classified as debt securities (paragraph 5.44).
- Reclassification of traded loans to debt securities allowed when negotiability evident (secondary market trading, market makers, frequent quotations) (paragraph 5.45).
- Nonparticipating preferred stocks paying fixed income without residual participation are classified as debt securities; convertible bonds classified as debt before conversion (paragraph 5.46).
- Asset-backed securities classified as debt securities because issuers must make payments and holders lack direct exposure to underlying asset risks (paragraph 5.47).
- Bankers’ acceptances: classified under debt securities; treated as financial assets from acceptance even if funds change hands later (paragraph 5.48).
- Index-linked securities: coupons/principal linked to an index or commodity price; classified as variable-rate instruments (paragraph 5.49).
- Stripped securities: transformed into zero-coupon strips; interest on stripped securities calculated on accrual basis (paragraph 5.50; paragraph 11.58).

### J. Loans; repos; gold swaps; leases; factoring; finite-risk reinsurance
- Loans:
  - Created when creditor lends funds directly to debtor and evidenced by non-negotiable documents (paragraph 5.51).
  - Include installment loans, hire-purchase credit, trade finance loans, factoring claims, cash collateral claims, repayable margins if not in deposits/accounts receivable (paragraph 5.51).
  - Overdraft from transferable deposit facility classified as loan; undrawn lines of credit not recognized as liability (paragraph 5.51).
  - Loans that become negotiable and recorded as debt securities are excluded from loans (paragraph 5.51).
- Securities repurchase agreements (repos):
  - Sale of securities for cash with commitment to repurchase; cash supply/receipt treated as loan or deposit (generally loan; deposit if liabilities of deposit-taking corporation or included in broad money) (paragraph 5.52).
  - Repos, securities lending with cash collateral, sale-buybacks economically equivalent (paragraph 5.53).
  - Securities provided as collateral under repos treated as not having changed economic ownership (paragraph 5.54).
- Gold swaps: exchange of gold for foreign exchange deposits with agreement to reverse; recorded as collateralized loan or deposit analogous to a repo; economic ownership of gold does not change (paragraph 5.55).
- Financial leases:
  - Lessor conveys substantially all risks/benefits to lessee; lessee economic owner; lessor shown as making loan to lessee; leased asset on lessee balance sheet and corresponding loan on lessor’s balance sheet (paragraph 5.56).
  - Indicators of financial lease: transfer of legal ownership at term end; bargain purchase option; lease term major part of economic life; present value of payments amounts to substantially all asset value; lessee bears cancellation losses; residual gains/losses accrue to lessee; option to continue lease at below-market payment (paragraphs 5.57–5.57 list).
  - Financial leases treated as asset purchase financed by loan; repayments include interest, principal, FISIM elements, residual payments (paragraphs 5.58–5.59).
  - Operating leases: legal owner remains economic owner; asset on lessor balance sheet; resource leases: resource remains on lessor balance sheet; some resource arrangements may amount to outright sale (paragraph 5.60).
- Financial or finite-risk reinsurance:
  - If policy involves no/very limited risk transfer and allows borrowing repayable on large claims, amounts drawn classified as loan; if not repayable (risk transferred), classified as insurance product (paragraph 5.61).
- Factoring:
  - Factor buys trade accounts receivable at discount; indirect financing by factor to debtor treated as loan (paragraph 5.XX).
  - Non-recourse factoring: factor assumes non-payment risk; recourse factoring: supplier retains risk; reclassification from trade credit to loan recorded as financial account transaction (paragraph 5.XX).
  - Recourse treated as guarantee and contingent liability for supplier until activated (paragraph 5.XX).
  - Factoring income treated as fee paid by supplier; reserve held by factor classified following other cash collateral recording rules (paragraph 5.XX).
  - Indirect financing by factor treated as loan but does not generate interest or FISIM (paragraph 5.61 footnote).

### K. Insurance, pension, and standardized guarantee schemes
- Categories (paragraph 5.62):
  - (a) nonlife insurance technical reserves;
  - (b) life insurance and annuity entitlements;
  - (c) pension entitlements and claims of pension funds on pension managers;
  - (d) provisions for calls under standardized guarantees.
- Nature: liabilities of insurers/pension funds/guarantors and corresponding assets of policyholders/beneficiaries; actuarial estimation used for aggregate liabilities; assets held to meet obligations may not equal liabilities (paragraph 5.63).
- Nonlife insurance technical reserves components: reserves for unearned premiums and reserves against outstanding claims; other internal reserves recognized only when event gives rise to liability (paragraph 5.64).
- Life insurance and annuity entitlements: reserves for prepaid premiums and accrued liabilities; annuity entitlements equal actuarial present value of future income obligations; hybrid products allocated by predominant features (paragraphs 5.65, 5.XX).
- Pension entitlements: claims current/future pensioners hold against employer or designated fund for pensions earned as compensation; included for funded schemes and some autonomous schemes when contributions are set aside and regulated; measurement involves assumptions and metadata should state methods (paragraphs 5.66–5.67).
- Provisions for calls under standardized guarantees: prepayments of net fees and provisions to meet outstanding calls; transactions in financial account similar to nonlife insurance reserves (paragraph 5.XX).

### L. Standardized guarantees; trade credit and advances; other accounts receivable/payable
- Standardized guarantees:
  - Defined as guarantees not provided by financial derivatives, where default probability can be well established and fees can be determined on insurance-like pooling principles (paragraph 5.68).
  - Contrast: financial-derivative guarantees (credit default swaps) and one-off guarantees (contingent until activated) (paragraph 5.68).
- Trade credit and advances:
  - Trade credit: deferred payment by suppliers to customers; advances: payments for work in progress or prepayments for goods/services not yet provided (paragraphs 5.70–5.71).
  - Trade credit excludes loans by third parties; trade bills discounted by financial institutions become negotiable instruments and classified as securities; sale of trade claims to factoring company reclassifies claim to loan (paragraph 5.72).
- Other accounts receivable/payable:
  - Includes taxes payable, securities purchase/sale liabilities, securities lending fees, gold loan fees, wages, dividends, social contributions accrued but unpaid; prepayments; claims from cash collateral if not in deposits/loans (paragraph 5.73).
  - Interest accrued recorded with the related financial instrument, not as other accounts receivable/payable, except securities lending and gold loan fees conventionally treated as interest (paragraph 5.73).

### M. Monetary gold; allocated and unallocated gold accounts
- Monetary gold: gold to which monetary authorities have title and held as reserve assets; includes gold bullion and unallocated gold accounts with nonresidents that give title to delivery (paragraph 5.74).
- Gold bullion: coins, ingots, bars with purity at least 995 parts per 1,000; monetary gold is a financial asset without counterpart liability (paragraph 5.74–5.75).
- Allocated gold accounts: ownership of specific gold pieces retained by depositor; when held as reserve assets classified as monetary gold; when not held as reserve assets treated as ownership of a good (paragraph 5.76).
- Unallocated gold accounts: claims against operator to deliver gold; when held as reserve assets classified as monetary gold; unallocated gold account assets not held as reserve assets and all unallocated gold account liabilities classified as deposits (paragraph 5.77).
- Monetary gold vs nonmonetary gold: monetary gold is a financial asset due to role in international payments/reserves; nonmonetary physical gold is a good (paragraph 5.78).

### N. Financial derivatives and employee stock options
- Financial derivatives: contracts linked to another instrument/indicator/commodity trading specific financial risks; transactions/positions treated separately from underlying values (paragraph 5.80).
- Valuation: value equals outlay required to replace existing contract; offsetability considered equivalent to tradability (paragraph 5.81).
- Settlement: often by net cash payment; unpaid overdue amounts at settlement reclassified as accounts receivable/payable (paragraph 5.82).
- Non-derivative arrangements: fixed-price goods/services contracts; insurance/standardized guarantees; contingent liabilities; instruments with embedded derivatives treated primarily by main instrument characteristics; gold swaps and most central bank swaps usually not derivatives (paragraph 5.83).
- Two derivative types (paragraph 5.84):
  - Option-type contracts: premium leg and contingent leg (buyer creditor, writer debtor except CDS).
  - Forward-type contracts: contingent payments; typically zero value at inception (paragraph 5.90).
- Warrants: options to purchase from issuer; may create new securities on exercise; covered warrants exist; detachable warrants treated as separate derivatives (paragraph 5.87).
- Forward-type contracts and futures: forwards, futures, swaps; futures traded on organized exchanges (paragraphs 5.88–5.89).
- Swap contracts: foreign exchange swaps, currency swaps, interest rate swaps, cross-currency interest rate swaps; initial exchange usually other investment; settlement differences allocated to derivative transactions (paragraphs 5.91–5.92).
- Credit derivatives: trade credit risk; include total return swaps and credit default swaps; CDS premiums for default protection (paragraph 5.93).
- Margins and collateral:
  - Margins are cash or collateral covering obligations; ownership of margin remains with depositor; cash margins classified as deposits, loans, or other accounts receivable/payable (paragraph 5.94).
  - Noncash repayable margins: no transaction recorded; marking to market leads to cash settlements recorded in deposits/loans/accounts with corresponding decrease in derivative assets/liabilities (paragraph 5.94).
  - Maintenance margin shortfall payments are not recorded as settlement of derivative (paragraph 5.94).
- Classification dimensions and market-risk categories (paragraphs 5.95 and 5.XX):
  1) By market risk categories (foreign exchange, interest rate, equity/commodity price risks, credit risk);
  2) By instrument (options, forwards/futures, swaps, credit derivatives, employee stock options);
  3) By trading venue/clearing status (exchange-traded; OTC cleared; OTC not cleared).
- Market-risk category examples: foreign exchange derivatives; single-currency interest rate derivatives; equity derivatives; commodity derivatives; credit derivatives; other derivatives (paragraph 5.XX).
- Multiexposure derivatives: report by separable components; if inseparable, report under most significant underlying risk following BIS precedence: commodities, equities, foreign exchange, single-currency interest rate, credit, other (paragraph 5.XX).
- Employee stock options: remuneration to employees; classified as financial derivatives if freely tradable; cross-border issuances noted; stock options to suppliers recorded under employee stock options for convenience (paragraphs 5.96–5.98).

### O. Classification by maturity, currency, and rate; arrears
- Maturity classification (paragraphs 5.103–5.105):
  - Short-term: payable on demand or with maturity of one year or less (paragraph 5.103(a)).
  - Long-term: maturity more than one year or no stated maturity (paragraph 5.103(b)).
  - Conventions: currency included in short-term; intercompany lending with unknown maturity may be conventionally long-term; insurance technical reserves and pension entitlements may be conventionally long-term absent data (paragraph 5.103).
  - Original maturity vs remaining maturity defined (paragraphs 5.104(a)–(b)).
  - Recommended remaining-maturity split: (a) short-term on original maturity basis; (b) long-term original maturity but due within one year or less; (c) long-term original maturity due in more than one year (paragraph 5.105).
  - Present value discounting guidance and practical proxies for remaining-maturity compilation (paragraph 5.XX; Box 5.1 example with $200 loan and scheduled repayments of $100 at t+1 and $100 at t+2).
- Currency classification (paragraphs 5.106–5.108):
  - Classify by domestic or foreign currency according to unit of account, denomination, or settlement (paragraph 5.106).
  - Table formats for currency composition and forward-type derivatives memorandum items referenced (paragraphs 5.107–5.108).
  - Decisive factor for receive/pay classification is exposure to currency movements; contracts paying and receiving foreign currency include notional amounts in both categories (paragraph 5.108).
- Variable-rate vs fixed-rate debt (paragraph 5.109 and following):
  - Variable-rate: coupon linked to a reference index that normally changes continuously (example: SOFR, commodity price, financial instrument price).
  - Fixed-rate: all other debt instruments; coupon adjusted only at intervals of more than a year considered fixed (paragraph 5.109).
  - Index-linked instruments treated as variable-rate if principal or coupons or both are indexed to a variable (paragraph 5.109).
  - Foreign-currency-linked instruments treated as denominated in foreign currency, not merely indexed (paragraph 5.109).
  - Coupons linked to credit ratings classified as fixed-rate; coupons conditional on threshold events may change classification when threshold reached (paragraph 5.109).
- Arrears (paragraphs 5.99–5.102):
  - Arrears are amounts unpaid and past due date; only overdue part classified as arrears (paragraphs 5.99–5.100).
  - Arrears related to exceptional financing shown as memorandum items; arrears not related to exceptional financing may be supplementary categories (paragraph 5.101).
  - Arrears may arise from reclassification or creation of new instrument due to renegotiation; liability ceases to be in arrears when overdue payments are met (paragraphs 5.101–5.102).
  - Accrual treatment of arrears discussed in paragraphs 3.56–3.57 (paragraph 5.102).

*Draft BPM7 Chapter 5, “Classifications of Financial Assets and Liabilities” (International Monetary Fund)*

### 5.1 This chapter discusses the classifications of financial assets and liabilities used in the international

### bpm7-ch5 - 5.1 This chapter discusses the classifications of financial assets and liabilities used in the international

### A. Definitions of economic assets and liabilities
- Paragraph 5.2: Economic assets are resources over which ownership rights are enforced and may entitle the owner to economic benefits. They include fixed assets (used repeatedly or continuously in production over more than one year), inventories, valuables, nonproduced nonfinancial assets, and financial assets.
- Paragraph 5.3: The economic owner is the party who bears the risks and receives the benefits of ownership; economic ownership may differ from legal ownership (example: financial leases). Every economic asset has demonstrable value and may be tangible or intangible.
- Enumerated kinds of economic benefits:
  - (a) the ability to use assets, such as buildings or machinery, in production;
  - (b) the generation of services, for example, renting out produced assets to another entity;
  - (c) the generation of property income (e.g., interest and dividends received by the owners of financial assets);
  - (d) the potential to sell and thus realize holding gains.
- Paragraph 5.4: Produced assets are covered in the goods and services account, nonproduced nonfinancial assets in the capital account, and financial assets and liabilities in the financial account and IIP. This chapter focuses on the classification of financial assets and liabilities.
- Table 5.1 (Economic Asset Classification) examples preserved from the source:
  - An nonfinancial assets
    - An1 produced assets
      - An11 fixed assets: Tangible assets: dwellings; other buildings and structures; machinery and equipment; weapons systems; cultivated biological resources. Intangible assets: research and development; mineral exploration; computer software and databases; entertainment, literary, and artistic originals.
      - An12 inventories: Materials and supplies, work-in-progress, finished goods, goods for resale.
      - An13 valuables: Precious metals and stones, antiques, and other art objects.
    - An2 nonproduced assets
      - An21 natural resources: Land and subsoil assets, noncultivated biological resources, water resources, radio spectra.
      - An22 contracts, leases, and licenses: Marketable operating leases, permissions to use natural resources, permissions to undertake specific activities, entitlement to future goods and services on an exclusive basis.
      - An23 Goodwill and marketing assets: Brand names, mastheads, trademarks.
    - AF financial assets: see Table 5.3

### B. Financial instruments; financial claims and assets
- Paragraph 5.5: Financial instruments consist of the full range of financial contracts made between institutional units. They may give rise to financial claims (paragraphs 5.6–5.8) or not (paragraphs 5.9–5.14).
- Paragraph 5.6: A financial claim is a financial instrument that gives rise to an economic asset that has a counterpart liability. Equity is regarded as a financial claim as it represents property rights and a claim on residual value.
- Paragraph 5.7: Each financial claim has a corresponding liability; liabilities arise when a debtor is obliged to provide funds or resources to a creditor.
- Paragraph 5.8: Nonfinancial assets do not have a corresponding liability (examples: fixed assets, commodities, and certain types of crypto assets).
- Paragraph 5.XX (draft notes): Certain instruments linked to commodity prices (examples listed: oil, gas, agricultural products, gold, silver, copper, platinum) are financial claims to the extent they give rise to an economic asset with a counterpart liability.
- Paragraph 5.9: Financial assets consist of financial claims and the gold bullion component of monetary gold. Financial assets include:
  - equity and investment fund shares,
  - debt instruments,
  - financial derivatives and employee stock options,
  - monetary gold.
- Paragraph 5.9 (continued): Financial assets include crypto assets with a corresponding liability; these should be recorded in relevant financial assets and liabilities (see Chapter 16.XX for discussions on crypto assets).
- Distinction between financial instruments and financial assets:
  - (a) Some financial instruments do not give rise to financial assets (examples: one-off guarantees not yet activated; unrealized commitments such as lines of credit, loan commitments, and letters of credit).
  - (b) Gold bullion held as monetary gold is a financial asset without a counterpart claim; unallocated gold accounts have a counterpart claim (paragraph 5.74 reference).
- Paragraphs 5.10–5.14: Contingent assets/liabilities and off-balance-sheet items
  - Paragraph 5.10: Contingent assets/liabilities (payments only if specified conditions prevail) are not recognized as financial assets/liabilities prior to fulfillment of the conditions; significant contingent items may be disclosed as supplementary information.
  - Paragraph 5.11: Equity, financial derivatives, index-linked instruments, insurance technical reserves, and provisions for standardized guarantees are recognized as financial assets despite uncertain future payments because the liability exists.
  - Paragraph 5.12: One-off guarantees are contingent; provisions for calls under standardized guarantees are not contingent.
  - Paragraph 5.13: Lines of credit, letters of credit, and loan commitments do not create a financial asset until funds are advanced; note issuance facilities create assets only when funds are provided by the facility.
  - Paragraph 5.14: Accounting provisions and future revenue streams (e.g., future tax collections, royalties receipts) are not recognized as financial assets; only actual current liabilities to another party are included.

### C. Other issues: negotiability and securities
- Paragraph 5.15: Securities are debt and equity instruments characterized by negotiability (legal ownership readily transferable by delivery or endorsement). Securities are designed to be traded (organized exchanges or over-the-counter). Negotiability is a legal form trait; some legally negotiable securities may lack a liquid market.

### D. Classification by instrument type (BPM7 approach)
- Paragraph 5.17: Three broad categories used:
  - (1) equity and investment fund shares,
  - (2) debt instruments,
  - (3) other financial assets and liabilities.
  - The 2025 SNA and the Manual use a more detailed classification based primarily on legal characteristics of instruments.
- Table 5.2 (Returns on Financial Assets and Liabilities: Financial Instruments and Their Corresponding Type of Income) — instruments and corresponding income types (preserved terms and codes):
  - Equity and investment fund shares
    - AF51 equity → D42 distributed income of corporations; D43 reinvested earnings; D41 interest
    - AF511+AF512 listed and unlisted shares → D421 dividends; D43 reinvested earnings; D41 interest
    - AF519 equity in international organizations and other equity → D422 Dividends and withdrawals from income of quasicorporations; D43 reinvested earnings; D41 interest
    - AF52 investment fund shares/units → D443 investment income attributable to investment fund shareholders (dividends, reinvested earnings, and imputed investment income)
  - Debt instruments
    - AF12 special drawing rights → D41 interest
    - AF2 currency and deposits → D41 interest
    - AF3 debt securities → D41 interest
    - AF4 loans → D41 interest
    - AF6 insurance, pension, and standardized guarantee schemes → D44 other investment income
    - AF81 Trade credit and advances → D41 interest
    - AF89 other accounts receivable/payable → D41 interest
  - Other financial assets and liabilities
    - AF11 monetary gold → D41 interest
    - AF7 financial derivatives and employee stock options → none
  - Notes preserved from table:
    - Reinvested earnings—a standard component for direct investment equity. A supplementary item for portfolio investment.
    - By convention, lending fees on equity securities, gold loans, and gold swaps are classified as interest (see paragraph 11.67).
    - Monetary gold consists of gold bullion and unallocated gold accounts. Gold bullion has no counterpart liability; counterpart liability of unallocated gold accounts is in deposits.
- Paragraphs 5.18–5.22: Equity and investment fund shares
  - Paragraph 5.19: Equity and investment fund shares represent property rights and residual claims after debt obligations are met.
  - Paragraph 5.20: Investment fund shares are identified separately because of their specialized role in financial intermediation; reinvested earnings are imputed for investment fund shares.
  - Paragraph 5.21: Equity consists of instruments acknowledging ownership rights and claims on residual value; equity is treated as a liability of the issuing institutional unit.
  - Paragraph 5.22: Ownership evidenced by shares, stocks, participations, depository receipts; participating preferred shares are equity securities whether or not income is fixed or determined by formula. Equity value can be affected by share premiums, accumulated reinvested or retained earnings, or revaluations. Direct investor may increase equity by providing or paying for goods and services or by assuming debt.

### E. 2025 SNA financial instruments classification (Table 5.3 excerpts)
- Table 5.3 maps 2025 SNA financial asset/liability codes to BPM7 broad categories (terms preserved literally):
  - AF11 monetary gold → other financial assets and liabilities (Gold bullion; unallocated gold accounts)
  - AF12 special drawing rights → debt instruments
  - AF2 currency and deposits → debt instruments
    - AF21 currency
    - AF221 interbank positions
    - AF229 other transferable deposits
    - AF29 other deposits
  - AF3 debt securities → debt instruments
  - AF4 loans → debt instruments
  - AF5 equity and investment fund shares → equity
    - AF51 equity
      - AF511 listed shares
      - AF512 unlisted shares
      - AF519 equity in international organizations and other equity
    - AF52 investment fund shares/units
      - AF521 money market fund shares/units
      - AF522 other investment fund shares/units
  - AF6 insurance, pension, and standardized guarantee schemes → debt instruments
    - AF61 nonlife insurance technical reserves
    - AF62 life insurance and annuity entitlements
    - AF63 pension entitlements
    - AF64 claims of pension funds on pension managers
    - AF65 entitlements to nonpension benefits
    - AF66 provisions for calls under standardized guarantees
  - AF7 financial derivatives and employee stock options → other financial assets and liabilities
    - AF71 financial derivatives
      - AF711 forward-type contracts
      - AF712 option-type contracts
    - AF72 employee stock options
  - AF8 other accounts receivable/payable → debt instruments
    - AF81 Trade credit and advances
    - AF89 other accounts receivable/payable

*Draft BPM7 Chapter 5, “Classifications of Financial Assets and Liabilities” (IMF)*

### 5.23 Depository receipts are certificates that represent ownership of securities listed in other econo-

### Draft BPM7 Chapter 5 — Classifications of Financial Assets and Liabilities (excerpts)

### Depository receipts (paragraph 5.23)
- Depository receipts are certificates that represent ownership of securities listed in other economies.
- Depository receipts listed on one exchange represent ownership of securities listed on another exchange, and ownership of the depository receipts is treated as if it represents direct ownership of the underlying securities.
- Depository receipts facilitate transactions in securities in economies other than their home listing.
- The underlying securities of depository receipts may be equity or debt securities.

### Equity: definitions and subcategories (paragraphs 5.24–5.27)
- Equity may be split into:
  - (a) listed shares,
  - (b) unlisted shares, and
  - (c) equity in international organizations and other equity.
- Listed shares: those listed on an exchange; may be referred to as quoted shares. Quoted prices mean current market prices are usually readily available (paragraph 5.25).
- Unlisted shares: may be referred to as private equity; venture capital often takes this form (footnote 2).
- Equity in international organizations and other equity:
  - Equity not classified as direct investment or portfolio investment (paragraph 5.26).
  - Equity ownership of many international organizations (e.g., ownership of currency union central banks) is usually not in tradable shares and is classified in this item.
  - Equity in some international organizations (such as the BIS) may be in the form of unlisted shares but is not tradable by member countries and is classified here (see paragraph A3.44).
  - Other equity can include equity in quasi-corporations (branches, trusts, limited liability and other partnerships), unincorporated funds, and notional units for ownership of real estate and other natural resources.
- Subscription rights (section 5.XX):
  - Rights for corporate shareholders to participate in acquisition of newly issued shares to offset dilution.
  - Subscription rights are classified as equity since the sum of the value of the shares after issuance and that of subscription rights represents the total value of the issuing corporation.
- Valuation:
  - General valuation principles in paragraphs 3.84–3.91 apply to equity.
  - For unlisted shares, equity in international organizations, and other equity, other valuation methods are noted in paragraphs 7.15–7.18 (paragraph 5.27).

### Investment fund shares or units (paragraphs 5.28–5.30)
- Investment funds: collective investment undertakings pooling investor funds for investment in financial or nonfinancial assets or both (paragraph 5.28).
- Funds issue shares (corporate structure) or units (trust structure).
- Investment funds include money market funds (MMF) and non-MMF investment funds (paragraphs 4.73–4.74 referenced).
- Investment fund shares or units refer to the shares issued by mutual funds and unit trusts, not the shares they may hold.
- MMFs:
  - Invest only or primarily in short-term money market securities such as treasury bills, certificates of deposit, and commercial paper (paragraph 5.29).
  - MMF shares and units sometimes functionally close to transferable deposits (accounts with unrestricted check-writing privileges).
  - If MMF shares are included in broad money in the reporting economy, they should be recorded as a separate item to allow reconciliation with monetary statistics.
- Investment funds may invest in debt securities, equity, commodity-linked investments, real estate, shares in other investment funds, and structured assets; data on asset composition can be useful where investment funds are significant (paragraph 5.30).

### Debt instruments: scope and characteristics (paragraphs 5.31–5.33)
- Debt instruments are financial instruments that require payment of principal and/or interest at some point(s) in the future (paragraph 5.31).
- Debt instruments consist of:
  - SDRs,
  - currency and deposits,
  - debt securities,
  - loans,
  - insurance technical reserves,
  - pension and related entitlements,
  - provision for calls under standardized guarantees,
  - other accounts receivable/payable.
- Some instruments (e.g., currency and some deposits) pay no interest; with insurance and pension schemes the income flow is called investment income attributable to insurance policyholders/investment income payable on pension entitlements (paragraph 5.31).
- Contrast with equity (paragraph 5.32):
  - Debt involves obligation to pay principal and/or interest usually according to a predefined formula; creditor has more limited risk exposure.
  - Equity gives a residual claim on the issuer’s assets; return depends on issuer performance.
- Maturity classification:
  - Because debt involves obligation to repay principal, short- or long-term classification (original or remaining maturity) is of analytical significance (paragraph 5.33). Maturity splits are explained in paragraphs 5.103–5.105.

### Special drawing rights (SDRs) (paragraphs 5.34–5.35 and 5.XX)
- SDRs are international reserve assets created by the IMF and allocated to members to supplement existing official reserves (paragraph 5.34).
- SDRs are held only by the monetary authorities of IMF members and a limited number of international financial institutions that are authorized holders.
- SDR holdings represent unconditional rights to obtain foreign exchange or other reserve assets from other IMF members.
- Holdings of SDRs by an IMF member are recorded as an asset; allocation of SDRs is recorded as the incurrence of a liability of the member receiving them because of a requirement to repay the allocation in certain circumstances and because interest accrues (paragraph 5.35).
- Holdings and allocations should be shown gross, rather than netted (paragraph 5.35).
- Domestic arrangements for holding SDRs and accounting treatment may differ across IMF members; the majority of members record SDR positions on the central bank’s balance sheet while some record them on the balance sheet of a government agency. Regardless of where recorded, the country’s reserve assets increase with the allocation (section 5.XX).

### Currency and deposits (paragraphs 5.36–5.43, 5.XX, 5.41–5.43)
- Currency (paragraph 5.36):
  - Consists of notes and coins of fixed nominal values issued or authorized by the central bank or governments.
  - Currency can also be issued digitally (i.e., central bank digital currencies).
- Gold and commemorative coins (paragraph 5.37):
  - Some countries issue gold coins held for intrinsic value or commemorative coins held for numismatic value.
  - If not in active circulation, such coins are not classified as financial assets but as goods (except gold coins classified as monetary gold; see paragraph 6.78).
  - Central bank or central government holdings of unissued or demonetized currency are not financial assets.
- Foreign currency in circulation (paragraph 5.38):
  - Shown as a currency asset of the resident holder and as a liability of the issuer.
  - Transactions between residents settled in foreign currency in circulation are domestic transactions.
- Deposits (paragraphs 5.39–5.43):
  - Deposits include all claims that are (a) on the central bank, deposit-taking corporations other than the central bank, and in some cases other institutional units; and (b) represented by evidence of deposit.
  - A deposit is usually a standard contract, open to the public at large, allowing placement of a variable amount of money; nominal value usually fixed in the currency of denomination; can be expressed in terms of an index or linked to a commodity price.
  - Unallocated accounts for precious metals are deposits, except unallocated gold accounts held by monetary authorities for reserves purposes (asset included in monetary gold; counterpart liability recorded as a deposit — see paragraph 5.77).
  - Distinction from loans is based on representation in documents; where unclear, possible convention: if one party is a deposit-taking corporation and the other is not, classify as a loan by both parties; similarly, liability of a deposit-taking corporation to another type is classified as a deposit by both parties (paragraph 5.40).
- Transferable deposits (paragraph 5.41):
  - Consist of deposits exchangeable for currency on demand at par and without penalty or restriction and directly usable for payments by check, draft, giro order, direct debit or credit, or other direct payment facility.
  - Some deposit accounts have limited transferability features.
  - An overdraft from the overdraft facility of a transferable deposit account is classified as a loan.
  - Transferable deposits include electronic money when liabilities of deposit-taking corporations.
- Interbank positions (paragraph 5.42):
  - Can be shown as a separate component of deposits.
  - Should be classified in relevant instrument categories; when uncertainty between loan and deposit, interbank positions should be recorded under deposits.
- Other deposits (paragraph 5.43):
  - Consist of all claims, other than transferable deposits, represented by evidence of deposit (includes savings and fixed-term deposits, nonnegotiable certificates of deposit).
  - Negotiable certificates are classified as debt securities.
  - Restricted deposits (withdrawal restrictions) included in other deposits, as are shares or similar evidence of deposit issued by savings and loan associations, building societies, credit unions.
  - Liabilities under securities repurchase agreements included in national measures of broad money are other deposits (liabilities under other repurchase agreements are included in loans).
  - Repayable margins for financial derivatives and other cash collateral included in national measures of broad money are included in other deposits (other repayable margins for derivatives are included in loans or accounts payable/receivable).
  - Reserve position in the IMF is included in other deposits (see paragraph 6.85).
- Central bank swap arrangements (section 5.XX):
  - Deposits include assets created under central bank swap arrangements involving temporary exchange of deposits between central banks of two economies (paragraphs 6.102–6.104 referenced).

### Debt securities (paragraphs 5.44–5.50 and related)
- Debt securities are negotiable instruments serving as evidence of a debt (paragraph 5.44).
- Examples include bills, bonds, notes, negotiable certificates of deposit, commercial paper, debentures, asset-backed securities, money market instruments, and similar instruments normally traded in financial markets.
- Bills give holders unconditional rights to receive stated fixed sums on a specified date and are generally issued at discounts to face value.
- Short-term securities examples: treasury bills, negotiable certificates of deposit, bankers’ acceptances, promissory notes, commercial paper.
- Debt securities give holders unconditional right to fixed or contractually determined variable payments; earning of interest is not dependent on debtors’ earnings.
- Depository receipts whose underlying securities are debt securities are classified as debt securities (see paragraph 5.23).
- Possible reclassification of traded loans as securities (paragraph 5.45):
  - Loans that become negotiable from one holder to another are to be reclassified from loans to debt securities under certain circumstances.
  - Evidence required: secondary market trading, existence of market makers, and frequent quotations (such as bid-offer spreads).
- Nonparticipating preferred stocks and convertible bonds (paragraph 5.46):
  - Nonparticipating preferred stocks that pay fixed income but do not provide participation in residual distribution on dissolution are classified as debt securities.
  - Bonds convertible into equity are classified as debt securities prior to conversion.
- Asset-backed securities (paragraph 5.47):
  - Include collateralized debt obligations and collateralized mortgage obligations where interest and principal payments are backed by payments on specified assets or income streams.
  - Backing assets can be financial assets (mortgages, credit card loans), pools of leased property, nonfinancial assets, or future income streams not recognized as economic assets in macroeconomic statistics.
  - Securitization provides liquidity to less liquid assets.
  - Asset-backed securities are classified as debt securities because issuers must make payments while holders do not have direct exposure to risks of the underlying assets; if holders had direct exposure, instruments would be equity or investment fund shares.
- Bankers’ acceptances (paragraph 5.48):
  - Acceptance by a financial corporation, for a fee, of a draft or bill of exchange with unconditional promise to pay a specific amount at a specified date.
  - Classified under debt securities; treated as financial assets from time of acceptance even if funds exchanged later.
- Index-linked securities (paragraph 5.49):
  - Coupon payments or principal or both are linked to another item (price index, interest rate, commodity price).
  - Classified as variable-rate instruments (see paragraph 5.113).
- Stripped securities (paragraph 5.50):
  - Securities transformed from principal with coupon payments into series of zero-coupon bonds (strips) with maturities matching coupon dates and redemption date.
  - Two cases:
    - Third party acquires original securities and uses them to back stripped securities (new funds raised; new instrument created).
    - No new funds raised; payments on original securities are stripped and separately marketed by issuer or agents with issuer’s consent.
  - Interest on stripped securities is calculated on an accrual basis (paragraph 11.58).

*Source: Draft BPM7 Chapter 5 Classifications of Financial Assets and Liabilities*

### 5.51 Loans are financial assets that (a) are created when a creditor lends funds directly to a debtor,

### 5.51 Loans are financial assets that (a) are created when a creditor lends funds directly to a debtor,

### Loans: definition and scope
- Loans are financial assets that (a) are created when a creditor lends funds directly to a debtor, and (b) are evidenced by documents that are not negotiable. (paragraph 5.51)
- Included instruments and circumstances:
  - All non‑negotiable claims other than deposits entailing fixed cash flows (or cash flows with determined by a formula), including those emerging from overdraft facilities, except accounts receivable/payable. (paragraph 5.51)
  - Installment loans, hire‑purchase credit, loans to finance trade, factoring claims, and cash collateral claims, including repayable margins for financial derivatives, if not recorded in deposits or accounts payable/receivable. (paragraph 5.51)
  - Claims on or liabilities to the IMF (including use of IMF credit) that are in the form of loans. (paragraph 5.51)
  - An overdraft arising from the overdraft facility of a transferable deposit account is classified as a loan. Undrawn lines of credit are not recognized as a liability. (paragraph 5.51)
- Exclusions and distinctions:
  - Loans that have become negotiable and been recorded in debt securities are excluded from loans. (paragraph 5.51)
  - Accounts receivable/payable are a separate category. (paragraph 5.51)
  - Distinction between loans and deposits discussed under deposits (paragraph 5.40). (paragraph 5.51)
- Notes and classifications:
  - Negotiability is defined in paragraph 5.15. Loans may be traded, but their legal form is not designed for negotiability in the same way as debt securities. (footnote to paragraph 5.51)
  - Repayable margin payments in cash are classified in deposits if the debtor’s liabilities are included in broad money; if not, recorded in loans or accounts payable/receivable. (footnote to paragraph 5.51)

### Securities repurchase agreements (repos) and related transactions
- Definition and classification:
  - A securities repurchase agreement (repo) is a contractual arrangement involving the sale of securities for cash at a specified price with a commitment to repurchase the same or similar securities at a fixed price on a specified future date or an “open” maturity. The supply and receipt of cash under a repo is treated as a loan or deposit. (paragraph 5.52)
  - Treatment as loan or deposit:
    - Generally treated as a loan.
    - Classified as a deposit if it involves liabilities of a deposit‑taking corporation or is included in national measures of broad money. (paragraph 5.52)
  - If a repo does not involve the supply of cash (exchange of securities for securities, or one party supplies a security without collateral), there is no loan or deposit. (paragraph 5.52)
  - Cash provided as collateral in margin calls under a repo are classified as loans or deposits. (paragraph 5.52)
- Equivalent arrangements:
  - Repos, securities lending with cash collateral, and sale‑buybacks have the same economic effect: provision of securities as collateral for a loan or deposit. “Repo” is from the security provider perspective; “reverse repo” from the security taker perspective. (paragraph 5.53)
  - Securities repurchase agreements are a subset of reverse transactions. (paragraph 5.53)
- Economic ownership and collateral:
  - Securities provided as collateral under securities lending or repos are treated as not having changed economic ownership because the cash receiver remains subject to risks or benefits of price changes. The same treatment applies for repurchase agreements without cash collateral (no transaction in the securities and no loan). (paragraph 5.54)
- Gold swaps:
  - A gold swap involves exchange of gold for foreign exchange deposits with agreement to reverse at an agreed future date and agreed gold price; recorded as a collateralized loan or deposit and analogous to a repo, except collateral is gold. (paragraph 5.55)
  - The gold taker (cash provider) usually will not record the gold on its balance sheet; the gold provider (cash taker) usually will not remove the gold from its balance sheet. (paragraph 5.55)
  - Gold swaps should not be confused with swaps giving rise to financial derivatives; under a gold swap, economic ownership of the gold does not change hands. (footnote to paragraph 5.55)

### Financial leases
- Definition and recording:
  - A financial lease is a contract under which the lessor as legal owner conveys substantially all the risks and benefits of ownership of the asset to the lessee; the lessee becomes the economic owner. Under a financial lease, the lessor is shown as making a loan to the lessee; the leased asset is shown on the lessee’s balance sheet and the corresponding loan is an asset of the lessor and liability of the lessee. (paragraph 5.56)
- Indicators that a lease is a financial lease (examples):
  - (a) the lease transfers legal ownership to the lessee at the end of the lease term;
  - (b) the lease has an option for the lessee to acquire legal ownership at the end of the lease term at a price sufficiently low that exercise is reasonably certain;
  - (c) the lease term is for the major part of the economic life of the asset;
  - (d) at inception, the present value of lease payments amounts to substantially all of the value of the asset;
  - (e) if the lessee can cancel the lease, the lessor’s losses are borne by the lessee;
  - (f) gains or losses in the residual value of the residual asset accrue to the lessee;
  - (g) the lessee has the ability to continue the lease for a secondary period for a payment substantially lower than market value. (paragraph 5.57)
- Treatment rationale and implications:
  - The treatment focuses on economic reality over legal form, treating assets under financial lease as if purchased and owned by the user. Example: a bank leasing an aircraft to an aviation company—economic ownership is deemed to transfer to the company; the IIP shows a loan between the aviation company and the bank. (paragraphs 5.58–5.59)
  - The debt liability at lease inception is defined as the value of the asset and is financed by a loan of the same value; repayments include interest, principal, and, if a financial intermediary is involved, FISIM elements, plus any residual payment or return of the good. (paragraph 5.59)
- Distinction from other leases:
  - Operating leases: legal owner remains economic owner; asset stays on lessor’s balance sheet; operating leases give rise to services. (paragraph 5.60(a))
  - Resource leases: legal owner of a natural resource makes it available for regular payments recorded as rent; resource remains on lessor’s balance sheet. Some resource arrangements may amount to outright sale of the natural resource. Leases of natural resources to nonresidents may lead to imputation of a notional resident unit with direct investment equity treatment. (paragraph 5.60(b))
  - Financial leases are also called finance leases or capital leases; similar treatment may apply to some public‑private partnerships. (paragraphs 5.57–5.60 and footnote)

### Financial or finite risk reinsurance
- Definition and classification:
  - Financial or finite risk reinsurance is an insurance policy involving no or very limited transfer of risk; depending on risk transfer it could be classified as a loan or an insurance policy. (paragraph 5.61)
  - If the policy allows borrowing funds repayable in event of large claims (financing function), amounts drawn are classified as a loan. If amounts are not repayable (risk transferred), the policy is an insurance product. (paragraph 5.61)

### Factoring
- Treatment and classification:
  - Factoring is a transaction in which a factor buys trade accounts receivable from a supplier at a discount; indirect financing by the factor to the supplier’s debtor is treated as a loan. (paragraph 5.XX)
  - Accounts receivable concerned are trade‑related receivables from goods, services, or work in progress. (paragraph 5.XX)
- Types of factoring and implications:
  - Non‑recourse factoring: factor assumes full risk of non‑payment; factor may charge supplier a higher fee. (paragraph 5.XX)
  - Recourse factoring: all or part of risk retained by supplier; factor may keep a reserve to be returned to supplier once debtor pays in full. (paragraph 5.XX)
  - Instrument reclassification from trade credit to a loan should be recorded as a transaction in the financial account. (paragraph 5.XX)
  - The recourse is treated as a guarantee and a contingent liability for the supplier; not recorded unless activated by the factor. (paragraph 5.XX)
  - Factoring income is treated as a fee paid by the supplier. (paragraph 5.XX)
  - The reserve held by a factor is classified as a deposit, a loan, or in accounts receivable/payable following recording of other cash collaterals. (paragraph 5.XX)
- Note: The indirect financing by the factor to the debtor is treated as a loan, but it does not generate interest or FISIM. (footnote to paragraph 5.XX / paragraph 5.61 cross‑note)

### Insurance, pension, and standardized guarantee schemes: overview
- Categories included: (paragraph 5.62)
  - (a) nonlife insurance technical reserves;
  - (b) life insurance and annuity entitlements;
  - (c) pension entitlements and claims of pension funds on pension managers;
  - (d) provisions for calls under standardized guarantees.
- Nature of these balances:
  - These reserves, entitlements, and provisions represent liabilities of insurers, pension funds, or issuers of standardized guarantees, and corresponding assets of policyholders or beneficiaries. Actuarial estimation is used for aggregate liabilities; valuation from individual asset holder perspective is less clear. Insurers, pension funds, and guarantors hold assets to meet obligations, not necessarily equal to liabilities. (paragraph 5.63)

### Nonlife insurance technical reserves
- Components: (paragraph 5.64)
  - (a) Reserves for unearned insurance premiums, including prepayment of premiums and reserves for unexpired risks (estimated payments for unfiled claims during the period covered).
  - (b) Reserves against outstanding insurance claims—amounts identified to cover expected payments from events occurred but not yet settled; other reserves (e.g., equalization reserves) may be internal accounting entries and recognized as liabilities and corresponding assets only when there is an event giving rise to a liability. Both nonlife direct insurance and reinsurance included. (paragraph 5.64)

### Life insurance and annuity entitlements (including hybrid products)
- Definition and purpose:
  - Reserves of life insurance companies and annuity providers for prepaid premiums and accrued liabilities to life insurance policyholders and annuity beneficiaries; used to provide benefits on expiry or death, kept separate from shareholders’ funds; regarded as liabilities of insurers and assets of policyholders/beneficiaries. (paragraph 5.65)
  - Annuity entitlements are actuarial present value of obligations to pay future income until beneficiary death. (paragraph 5.65)
- Hybrid insurance products:
  - Allocated to life or nonlife depending on predominant features (saving component vs. claims‑only component). Predominant benefit/purpose guides allocation. (paragraph 5.XX)

### Pension entitlements
- Scope and recognition:
  - Pension entitlements are financial claims current and future pensioners hold against employer or designated fund for pensions earned as part of compensation agreements; also arise from autonomous employer‑independent schemes if accumulated contributions are set aside and subject to regulation/supervision similar to employer‑related schemes. (paragraph 5.66)
  - Liabilities of funded and, in some cases, unfunded pension schemes may be included if not intertwined with social security schemes. Measurement involves assumptions and methods; nature of coverage and estimation should be stated in metadata. (paragraph 5.66)
- Social security vs. employer‑related entitlements:
  - Pension entitlements related to social security schemes are generally not recognized as financial assets or liabilities due to legal imposition and possible retrospective adjustments. Employer‑employee derived entitlements are generally recognized unless intertwined with social security. Where a government employer’s pension fund is clearly separated from social security, entitlements may qualify as financial assets/liabilities. (paragraph 5.67)
- Sponsorship and administration:
  - If an employer contracts a third party to administer pension funds but retains responsibility for deficits and right to excess, the employer is pension sponsor and administrator; if employer transfers deficit risk and excess rights to third party, third party becomes sponsor and administrator. A funding deficit or excess payable to/by the sponsor is recorded in this item. (paragraph 5.XX)

### Provisions for calls under standardized guarantees
- Identified as a component of insurance, pension, and guarantee schemes liabilities. (paragraph 5.62(d))
- Further discussion and selected issues on financial instruments referenced to 2025 SNA, Chapter 25. (paragraph 5.62 and references)

*Draft BPM7 Chapter 5 Classifications of Financial Assets and Liabilities (International Monetary Fund)*

### 5.68 Standardized guarantees are defined as those that are not provided by means of a financial deriva-

### 5.68 Standardized guarantees are defined as those that are not provided by means of a financial deriva-

### Standardized guarantees: definition and distinguishing features
- Paragraph 5.68: Standardized guarantees are defined as those that are not provided by means of a financial derivative (such as credit default swaps), but for which the probability of default can be well established.
- Characteristics:
  - Cover similar types of credit risk for a large number of cases (examples: guarantees issued by governments on export credit or student loans).
  - Individual loan default risk cannot be precisely estimated, but reliable estimates can be made of how many out of a large number of such loans will default.
  - Guarantors can determine suitable fees on the same principle as an insurance corporation: fees received in respect of many policies cover losses by a few.
- Contrasts with other guarantees:
  - (a) Guarantees that are financial derivatives (see paragraph 5.80): protect, on a guarantee-by-guarantee basis, the lender by paying the guarantor a fee for a specified period; market experience allows standard master legal agreements or reasonable estimates of borrower default likelihood; credit default swaps are included in financial derivatives as option-type contracts.
  - (b) One-off guarantees: conditions so particular that degree of risk cannot be calculated with precision; not recognized as economic assets until activation (contingent assets until activated; see paragraph 5.12); flows associated with activation discussed in paragraphs 8.42–8.45; one-off guarantees by governments to corporations in financial distress with a very high likelihood of being called are treated as if activated at inception (see paragraph 13.34).

### Provisions for calls under standardized guarantees
- Paragraph 5.XX: Provisions for calls under standardized guarantees consist of prepayments of net fees and provisions to meet outstanding calls under standardized guarantees.
- Transactions recorded in the financial account are similar to the reserves for non-life insurance and include unearned fees and claims not yet settled.

### Trade credit and advances
- Paragraph 5.70: Trade credit and advances consist of:
  - (a) credit extended in the form of deferred payment directly by the suppliers of goods and services to their customers;
  - (b.1) advances for work that is in progress (or is yet to be undertaken);
  - (b.2) prepayment by the buyers for goods and services not yet provided.
- Paragraph 5.71: Trade credit and advances arise when payment for goods or services (other than FISIM and pre-payment of insurance services) is not made at the same time as the change in ownership of a good or provision of a service. If payment is made before change of ownership, there is an advance. Examples: down payments or holding deposits (where ownership of the funds changes hands) included in trade advances. Changes of ownership for high-value capital goods may give rise to trade credit and advances only if there is a timing difference between change of ownership and progress payments (see paragraphs 3.44 and 10.28). Barter arrangements: if goods or services do not change ownership at same time, an entry is made for trade credit and advances.
- Paragraph 5.72: Exclusions and reclassifications:
  - Trade credit and advances do not include loans to finance trade made by an institutional unit other than the supplier (those are included under loans).
  - Trade bills drawn on an importer and provided to an exporter, subsequently discounted by the exporter with a financial institution, become a claim by a third party on the importer; negotiable instruments should be classified as securities.
  - A supplier may sell trade claims other than trade bills to a factoring company, in which case the claim is reclassified from trade credit to a loan.
- Footnotes and related guidance:
  - Trade credit sometimes described as supplier credit or supplier’s credit.
  - FISIM accrued but not yet paid is included with the relevant debt instrument (see paragraph 7.41). Prepayment of insurance premiums is included in insurance technical reserves (see paragraph 5.64).
  - Trade-related credit is identified in External Debt Statistics: Guide for Compilers and Users, Chapter 6; consists of trade credit, trade bills and credit provided by third parties to finance trade; compiled as a supplementary item where significant.

### Other accounts receivable/payable
- Paragraph 5.73: Other accounts receivable/payable includes accounts receivable or payable such as:
  - liabilities for taxes, purchase and sale of securities, securities lending fees, gold loan fees, wages and salaries, dividends, and social contributions that have accrued but not yet paid;
  - prepayments of those items;
  - claims arising from cash collateral agreements (including repayable margins for financial derivatives) if not recorded in deposits or loans.
- Recording rule: Interest accrued should be recorded with the financial asset or liability on which it accrues, not as other accounts receivable/payable.
- Exception by convention: Securities lending and gold loan fees are treated as interest by convention (see paragraphs 11.67–11.68); corresponding entries are included under other accounts receivable/payable rather than with the instrument to which they relate.

### Monetary gold
- Paragraph 5.74: Monetary gold is gold to which the monetary authorities (or others subject to the effective control of the monetary authorities) have title and is held as reserve assets. Gold includes gold bullion and unallocated gold accounts with nonresidents that give title to claim the delivery of gold. Gold bullion: coins, ingots, or bars with a purity of at least 995 parts per 1,000, including such gold held in allocated gold accounts.
- Paragraph 5.75: All monetary gold is included in reserve assets or is held by international financial organizations. Gold bullion included in monetary gold is a financial asset for which there is no corresponding liability. Gold bullion not held as reserve assets is not a financial asset and is included in nonmonetary gold (goods account; see paragraphs 10.50–10.54). Central bank ownership of gold not held as reserves may occur (e.g., when acting as a monopoly reseller of mined gold).

### Gold accounts: allocated and unallocated
- Paragraph 5.76 — Allocated gold accounts:
  - Provide ownership of a specific piece of gold; ownership remains with the entity placing it for safe custody.
  - Typically offer purchasing, storing, and selling of investment-grade bars and coin to order.
  - Pool allocated gold accounts: depository sets aside numbered bars into a segregated pool backing the amount of allocated gold owed to customers; recorded same as allocated gold accounts in external sector statistics.
  - When held as reserve assets, allocated gold accounts are classified as monetary gold. When not held as reserve assets, allocated gold accounts are treated as ownership of a good.
- Paragraph 5.77 — Unallocated gold accounts:
  - Represent a claim against the account operator to deliver gold; account provider holds title to a reserve base of physical (allocated) gold and issues claims to account holders denominated in gold.
  - When held as reserve assets, unallocated gold accounts are classified as monetary gold.
  - Unallocated gold account assets not held as reserve assets, and all unallocated gold account liabilities, are classified as deposits.
  - Gold accounts are distinct from accounts linked (indexed) to gold but not giving title to claims for delivery; such index-linked accounts are not part of monetary gold and are classified by their nature as a financial instrument, usually as deposits.
- Paragraph 5.78 — Relationship to nonmonetary gold:
  - Monetary gold is a financial asset; nonmonetary physical gold is a good (see paragraphs 10.50–10.54).
  - Other precious metals are goods, not financial assets.
  - Monetary gold’s treatment differs because of its role in international payments and as a store of value in reserve assets.
  - Changes in classification between monetary and nonmonetary gold are shown in the other changes in assets and liabilities account (see paragraphs 9.18–9.20).

### Financial derivatives and employee stock options: overview
- Paragraph 5.79: Financial derivatives and employee stock options are financial assets and liabilities that have similar features (e.g., a strike price) and some of the same risk elements. Employee stock options also serve as a form of remuneration.

### Financial derivatives: definition and valuation
- Paragraph 5.80: A financial derivative contract is a financial instrument linked to another specific financial instrument or indicator or commodity through which specific financial risks (such as interest rate risk, foreign exchange risk, equity and commodity price risks, credit risk, and so on) can be traded in their own right in financial markets. Transactions and positions in financial derivatives are treated separately from the values of any underlying items.
- Paragraph 5.81: Risk embodied in a derivative can be traded by trading the contract itself (options) or by creating a new contract embodying risk characteristics that countervail those of the existing contract (offsetability, common in forward markets). Offsetability is considered equivalent to tradability in demonstrating value. The outlay required to replace the existing derivative contract represents its value; actual offsetting is not required.
- Paragraph 5.82: Derivatives are often settled by payments of net amounts in cash rather than delivery of underlying items. Once a derivative reaches its settlement date, any unpaid overdue amount is reclassified as accounts receivable/payable because its value is fixed and the nature of the claim becomes debt.

### Arrangements and instruments that are not financial derivatives (paragraph 5.83)
- The following are not financial derivatives:
  - (a) A fixed-price contract for goods and services is not a financial derivative unless standardized so market risk can be traded in its own right (example: an option to purchase an aircraft from the manufacturer is not a financial derivative).
  - (b) Insurance and standardized guarantees are not financial derivatives; insurance and standardized guarantees manage event risk primarily by pooling, not trading. Some guarantees other than standardized guarantees may meet the definition of financial derivatives (see paragraph 5.68).
  - (c) Contingent assets and liabilities, such as one-off guarantees and letters of credit, are not financial assets (see paragraphs 5.10–5.13).
  - (d) Instruments with embedded derivatives are not financial derivatives; primary instrument classified according to its primary characteristics even if value differs because of the embedded derivative. Examples: convertible bonds and securities with options for repayment of principal in currencies differing from issuance currency. Detachable warrants are treated as separate financial derivatives because they can be detached and sold.
  - (e) Timing delays arising in normal business (normal settlement periods for spot transactions) do not give rise to financial derivatives.
  - (f) Gold swaps and most central bank swap arrangements are not financial derivatives; most central bank swap arrangements have different pricing and/or conditions from standard market-priced currency swaps. If a central bank swap follows pricing and conditions of a regular market-priced swap, it should be recorded as a financial derivative.
  - (g) Subscription rights are classified as equity rather than financial derivatives.
- Footnote notes:
  - If the owner of a primary instrument creates a new reverse derivative to offset an embedded derivative, the new derivative is recorded as a separate transaction and does not affect recording of the primary instrument.
  - Credit default swaps are generally regarded as option-type contracts. However, either party to a credit default swap contract can be creditor or debtor.

### Types of financial derivatives: option-type and forward-type
- Paragraph 5.84: Two broad types—option-type contracts and forward-type contracts.
  - Option-type contracts: entail two payment streams — a "premium leg" (fixed payments from buyer to seller) and a "contingent leg" (payments from seller to buyer depending on underlying asset pricing); contingent leg usually entails a single payment at maturity; premium leg in standard put and call options consists in a single payment at inception.
  - Forward-type contracts: entail contingent payments between parties depending on the underlying asset’s pricing.
- Paragraph 5.85: Contrasts between option-type and forward-type:
  - (a) At inception, forward-type contracts usually have no up-front payment and begin with zero value; option-type contracts usually have a premium representing a nonzero value.
  - (b) During the life of a forward-type contract, either party can be creditor or debtor and this may change; for an option-type contract, the buyer is always the creditor and the writer is always the debtor except for a credit default swap.
  - (c) At maturity, redemption is unconditional for a forward-type contract; for an option-type contract redemption is determined by the buyer of the contract.

### Option-type contracts and warrants
- Paragraph 5.86: Option-type contract (option): purchaser acquires right to buy or sell a specified underlying item at a strike price on or before a specified date; purchaser pays a premium to the writer; buyer acquires right but not obligation to buy (call) or sell (put) at agreed contract price on or before specified date. On a derivatives exchange, the exchange may act as counterparty to each contract.
- Paragraph 5.87: Warrants:
  - A form of financial derivative option giving owner right but not obligation to purchase from the issuer a fixed amount of an underlying asset at an agreed contract price for a specified period or date.
  - Distinguishing factor: exercise of warrants can create new securities and dilute capital of existing bondholders or shareholders; traded options typically grant rights over assets already available.
  - If attached to bonds (warrant-linked bonds) to allow for a lower coupon payment, the warrants are not treated as a separate financial asset (see 5.83 (d)).
  - Warrants include covered warrants; covered warrant gives holder right but not obligation to buy or sell an underlying asset at agreed contract price for a specified period or date; covered warrants allow purchase or sale of a variety of financial or non-financial items (e.g., equities, currencies, and commodities).

### Forward-type contracts and futures
- Paragraph 5.88: Forward-type contract (forward) is an unconditional contract by which two counterparties agree to exchange a specified quantity of an underlying item (financial or nonfinancial) at an agreed contract price (strike price) on a specified date. Forward-type contracts include futures and swaps (other than as discussed in paragraph 5.91). Forward rate agreements and forward foreign exchange contracts are common types of forward-type contracts.
- Paragraph 5.89: Futures are forward-type contracts traded on organized exchanges. Exchanges facilitate trading by determining standardized terms and conditions, acting as counterparty to all trades, and requiring margin to mitigate risk.

*Draft BPM7 Chapter 5 Classifications of Financial Assets and Liabilities*

### 5.90 At the inception of a forward-type contract, risk exposures of equal market value are exchanged, so

### bpm7-ch5 - 5.90 At the inception of a forward-type contract, risk exposures of equal market value are exchanged, so

### Forward-type contracts and initial valuation
- At inception, risk exposures of equal market value are exchanged, so a contract typically has zero value at that time (paragraph 5.90).
- As the price of the underlying item changes, the market value will change, although it may be restored to zero by periodic settlement during the life of the forward (paragraph 5.90).
- Asset and liability positions of financial derivative contracts may switch except for those of standard option contracts (paragraph 5.90).
- Notional amounts for foreign currency forward-type contracts (e.g., foreign exchange swaps, currency swaps, and foreign exchange forwards) are off-balance-sheet and the notional amount is not recorded on balance sheet; scheduled payments and receipts of foreign currencies associated with these instruments are to be compiled (see A7.43 and A7.45; paragraph 5.XX).

### Swap contracts (paragraphs 5.91–5.92)
- Definition: Swap contracts involve counterparties exchanging financial instruments or cash flows based on reference prices of underlying items according to prearranged terms (paragraph 5.91).
- Swap types classified as forward-type contracts: foreign exchange swaps, currency swaps, interest rate swaps, and cross-currency interest rate swaps (paragraph 5.91).
- Timing: Obligations of each party may arise at different times (example: quarterly payments for one party and annual for the other); interim quarterly amounts payable prior to the annual payment are recorded as transactions in the financial derivative contract (paragraph 5.91).
- Inception and settlement for foreign currency swaps:
  - At inception, parties’ exchange of underlying financial instruments is usually classified under other investment (paragraph 5.92).
  - At settlement, the difference in values, measured in the unit of account at the prevailing exchange rate, of the currencies swapped are allocated to a transaction in a financial derivative, with the values swapped recorded in the relevant other item (usually other investment) (paragraph 5.92).

### Credit derivatives (paragraph 5.93)
- Purpose: Financial derivatives whose primary purpose is to trade credit risk (paragraph 5.93).
- Scope: Designed for trading in loan and security default risk; take the form of both forward-type (total return swaps) and option-type contracts (credit default swaps) (paragraph 5.93).
- Credit default swaps: Premiums are paid in return for a cash payment in the event of a default by the debtor of the underlying instrument (paragraph 5.93).
- Operational features: Frequently drawn up under standard master legal agreements and involve collateral and margining procedures that allow for a means to make a market valuation (paragraph 5.93).
- Note: Credit derivatives are distinguished from market-risk-related derivatives (foreign exchange, interest, equity, commodity) (paragraph 5.93).

### Margins and collateral (paragraph 5.94)
- Definition: Margins are payments of cash or deposits of collateral that cover actual or potential obligations incurred (paragraph 5.94).
- Purpose: Required provision of margin reflects market concern over counterparty risk and is standard in financial derivative markets, especially futures and exchange-traded options (paragraph 5.94).
- Ownership: Ownership of the margin remains with the unit that deposited it (paragraph 5.94).
- Classification of margin payments in cash: Classified as deposits (if the debtor’s liabilities are included in broad money), loans, or other accounts receivable/payable (paragraph 5.94).
- Noncash repayable margin deposits (e.g., securities): No transaction is recorded because no change in economic ownership has occurred (paragraph 5.94).
- Marking to market and adjustments: In organized exchanges and clearing houses, margins are increased or decreased as a result of settling profits/losses by marking to market value often on a daily or intraday basis; cash settlements are recorded as increases/decreases in deposits, loans, or other accounts receivable/payable with a corresponding entry in a decrease in financial derivative assets or liabilities (paragraph 5.94, 5.XX).
- Maintenance margin: If margin falls short of the required level (maintenance margin), an additional margin must be paid; that payment is not to settle a financial derivative contract and should not be recorded in financial derivatives (paragraph 5.94, 5.XX).
- Applicability: Principles for classification of margins apply more generally to other cash collateral agreements, including margin calls relating to positions in other financial assets (paragraph 5.94).

### Classification and supplementary detail (paragraphs 5.95 and 5.XX)
- Additional classification dimensions:
  1) By market risk categories: foreign exchange risk, interest rate risk, equity and commodity price risks, and credit risk or risks to other underlying instruments (paragraph 5.95).
  2) By instrument: options, forwards and related instruments (futures), swaps, credit derivatives, marketable employee stock options, and other instruments (paragraph 5.95).
  3) By trading venue and clearing status: exchange traded; over-the-counter (OTC) (cleared); OTC (not cleared) (paragraph 5.95).
- Market risk category characteristics (paragraph 5.XX):
  - (a) Foreign exchange derivatives: involve exchange of currencies in the forward market; include outright forwards, foreign exchange swaps, currency swaps (including cross-currency interest rate swaps), and currency options (paragraph 5.XX(a)).
  - (b) Single currency interest rate derivatives: restricted to deals where all legs are exposed to only one currency’s interest rate; include forward rate agreements, single-currency interest rate swaps and interest rate options (caps, floors, collars, corridors); exclude contracts involving exchange of currencies and contracts whose predominant risk is foreign exchange risk (paragraph 5.XX(b)).
  - (c) Equity derivatives: return linked to price of particular equity or equity index (paragraph 5.XX(c)).
  - (d) Commodity derivatives: return linked to price or price index of a commodity (paragraph 5.XX(d)).
  - (e) Credit derivatives: payout linked primarily to measure of creditworthiness of a reference asset; triggers include default, rating downgrade, or stipulated change in credit spread; typical instruments include credit default swaps, credit-spread forwards and options, credit event or default swaps and total return swaps (paragraph 5.XX(e)).
  - (f) Other derivatives: include inflation-indexed derivatives, volatility derivatives, dividend derivatives, weather derivatives, property derivatives, freight derivatives, and other non-standard underlying contracts (paragraph 5.XX(f)).
- Multiexposure derivatives: 
  - Individual derivatives may straddle more than one risk category; simple combinations should be reported separately by components (paragraph 5.XX).
  - Derivatives that cannot be readily separated should be reported in only one risk category, determined by the underlying risk component that is most significant (paragraph 5.XX).
  - If doubt exists, allocation by risk component should follow the order of precedence adopted by the BIS: commodities, equities, foreign exchange, and single-currency interest rate, credit, and other (paragraph 5.XX).

### Employee stock options (paragraphs 5.96–5.98)
- Nature: Options to buy equity of a company offered to employees as remuneration; have different nature from traded financial derivatives due to granting and vesting arrangements and motivation to incentivize employees (paragraph 5.96).
- Cross-border cases: In some cases the company that issues the option is a resident of a different economy from the employee (paragraph 5.96).
- Classification: If a stock option granted to employees can be traded on financial markets without restriction, it is classified as a financial derivative (paragraph 5.96).
- Treatment for suppliers: Stock options provided to suppliers of goods and services are recorded under employee stock options for convenience, though corresponding entry differs from options granted to employees (paragraph 5.97).
- Transactions associated with issuance: See paragraph 8.41 for transactions associated with issue of employee stock options (paragraph 5.98).

### Classification by maturity (paragraphs 5.103–5.105, Box 5.1)
- Short-term vs long-term:
  - Short-term: payable on demand or with a maturity of one year or less (paragraph 5.103(a)).
  - Long-term: maturity of more than one year or with no stated maturity (other than on demand) (paragraph 5.103(b)).
- Conventions and special cases:
  - Currency is included in short-term maturity (paragraph 5.103).
  - Intercompany lending with unknown maturity may be conventionally classified as long-term (paragraph 5.103).
  - Insurance technical reserves, pension entitlements, and provisions for calls under standardized guarantee can potentially be classified by maturity; absent data, convention that they are all long-term can be adopted (paragraph 5.103).
  - When securities contain an embedded put option, maturity is determined without reference to embedded put options (paragraph 5.103).
- Maturity types:
  - (a) Original maturity: period from issue until final contractually scheduled payment (paragraph 5.104(a)).
  - (b) Remaining maturity (residual maturity): period from reference date until final contractually scheduled payment (paragraph 5.104(b)).
- Use in Manual:
  - Original maturity used in standard components; remaining maturity used in Table A14-IV of Appendix 14 and encouraged for some position data (paragraph 5.104).
  - Remaining-maturity measures indicate timing of payments and potential liquidity risks (paragraph 5.104).
- Recommended remaining-maturity split (paragraph 5.105):
  - (a) short-term on an original maturity basis;
  - (b) long-term on an original maturity basis, but due for payment within one year or less;
  - (c) long-term on an original maturity basis, and due for payment in more than one year.
- Practical guidance (paragraph 5.XX):
  - Remaining maturity should split payments due in the coming year from those due in more than one year.
  - Present value of outstanding long-term external debt (original maturity) due to be paid in one year or less is the discounted value of payments to be made in the coming year, for both coupon and principal; to discount, use contractual interest rate for loans and market interest rate for debt securities.
  - Where discounting is practically difficult, an alternative proxy is the undiscounted value of principal payments due in the coming year; this proxy is incomplete for coupon coverage but can be compiled using principals for projecting payments in a debt-service schedule.
- Box 5.1 example (loan):
  - Example loan: $200 issued at t with scheduled repayments of $100 at t+1 and $100 at t+2; contractual coupon rate 5 percent a year; classification based on debt-service payments splits loan into short-term and long-term buckets as of reference date (Box 5.1).

### Classification by currency (paragraphs 5.106–5.108)
- Currency classification: A financial asset or liability may be classified as domestic currency or foreign currency according to unit of account, denomination, or settlement (paragraph 5.106).
- Tables and compilation:
  - Table A9-I of Appendix 9 provides format for presenting currency composition of outstanding debt claims and liabilities using currency of denomination; includes an “unallocated” row for reporting difficulties (paragraph 5.107).
  - Table A14-I of Appendix 14 includes forward-type financial derivatives of all resident sectors with nonresidents to receive and to pay foreign currency; forward-type contract to purchase foreign currency with domestic currency is classified as a financial derivative to receive foreign currency; contract to purchase domestic currency with foreign currency at a future date is classified as a financial derivative to pay foreign currency (paragraph 5.108).
  - Currency compositions in forward-type financial derivatives are compiled in Table A14-I as memorandum items; option-type contract currency compositions are compiled in Table A14-III as supplementary items (paragraph 5.108).
- Determining receive/pay classification:
  - Decisive factor is exposure to currency movements: if payment of a financial derivative contract is linked to a foreign currency, even if payment is required in domestic currency, the derivative is classified as a contract to pay foreign currency, and vice versa (paragraph 5.108).
  - If a single financial derivative contract both pays and receives foreign currency, the notional amount should be included under both categories (to pay and to receive foreign currency) (paragraph 5.108).
- Memorandum note: The premium leg for CDS is predetermined and should be included in the memorandum tables along with the notional values of forward-type contracts (footnote paragraph 5.108).

*Draft BPM7 Chapter 5, Classifications of Financial Assets and Liabilities, International Monetary Fund*

### 5.109 Debt instruments may be classified as either variable-rate or fixed-rate. This breakdown may be use-

### bpm7-ch5 - 5.109 Debt instruments may be classified as either variable-rate or fixed-rate. This breakdown may be use-

### Variable-rate versus fixed-rate debt
- Variable-rate instruments are those for which coupon (and therefore interest) is linked to a reference index—for example, the Secured Overnight Financing Rate (SOFR), or the price of a specific commodity, or the price of a specific financial instrument that normally changes over time in a continuous manner in response to market conditions.
- All other debt instruments should be classified as fixed-rate.
- A coupon rate that is adjusted, but only at intervals of more than a year, is considered to be fixed.
- Coupon that is adjusted each one year or less is considered to be variable.
- Variable-rate instruments are subject to fluctuation in income flows in response to changes in market conditions, while fixed-rate securities are more subject to changes in prices.
- The split may be considered as possible supplementary information, as in External Debt Statistics: Guide for Compilers and Users.

### Index-linked instruments, credit-rating links, and foreign-currency linking
- Index-linked instruments are classified as being variable-rate when the principal or coupons or both are indexed to some variable, for example, to a general or specific price index.
- An instrument is classified as variable-rate if the indexation applies to the principal or coupons, or both (notwithstanding the treatment of interest discussed in paragraphs 11.59–11.65).
- A foreign-currency-linked instrument (as discussed in paragraph 11.50(b)) is treated as being denominated in the foreign currency, rather than indexed to it.
- Coupon on debt that is linked to the credit rating of another borrower should be classified as fixed-rate, because credit ratings do not change in a continuous manner in response to market conditions.
- Coupon on debt that is linked to a reference price index should be classified as variable-rate, provided that the prices that are the basis for the reference index are primarily market determined.

### Conditional and switched classifications; derivatives
- If coupons are linked to a reference index, commodity price, or financial instrument price but is fixed unless the reference index or price passes a particular threshold, it should be regarded as fixed-rate.
- If thereafter the coupon becomes variable, then it should be reclassified as a variable-rate instrument.
- If coupon is variable-rate until it reaches a predetermined ceiling or floor, the instrument becomes fixed-rate debt when that ceiling or floor is reached.
- If the payment stream of a variable-rate instrument is swapped with the payment stream of a fixed-rate instrument, the swap is recorded as giving rise to a financial derivative, while the classification of the original debt instruments is unchanged.
- The classification of a financial asset or liability can change over time; e.g., if it switches from fixed- to variable-rate. In the period when a fixed rate is applied, the financial asset or liability is to be classified as fixed-rate debt. After the rate switches to variable, it is classified as variable-rate debt.

### Arrears (paragraphs 5.99–5.102)
- Arrears are defined as amounts that are both unpaid and past the due date for payment.
- Only the amounts past due are classified as arrears—for example, in the case of overdue installments, only the overdue part is in arrears.
- An additional subclassification can be made for instruments in arrears.
- Arrears related to exceptional financing are shown as memorandum items in all cases. (Exceptional financing is defined and discussed in Appendix 1.)
- Arrears not related to exceptional financing may be recorded as a supplementary category in total and under the specific financial asset or liability class affected; separate data on arrears may be of analytical interest when there is evidence of a high or rapidly rising value of arrears.
- Arrears may be associated with either:
  - re-classification of an existing instrument when a change in terms is triggered by the provisions of the original contract, or a change of the nature of the claim when the settlement of a financial derivative becomes overdue (see paragraph 5.82); or
  - the creation of a new instrument as a result of renegotiated terms (also discussed in paragraph 8.58).
- In either case, amounts not paid when due should be included in arrears.
- A liability ceases to be in arrears if all overdue payments are met.
- The accrual treatment of arrears is discussed in paragraphs 3.56–3.57.

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/draft-chapters/bpm7-ch5.pdf_