Part B - Transactions in financial assets and liabilities
All financial assets (with the exception of monetary gold in the form of gold bullion held as reserve assets) have matching counterpart liabilities, and are discussed together in this chapter to emphasise the counterparty relationship between them. In GFS, transactions record the change in the stock positions of financial assets and liabilities, and form part of the analytical framework (see Diagram 4.1 of this manual).
Transactions that increase a unit’s holdings of a financial asset are called acquisitions, while transactions that decrease a unit’s holdings of a financial asset are called disposals (with the exception of amortisation). Paragraph 9.4 of the IMF GFSM 2014 defines transactions that increase liabilities as the incurrence of liabilities in GFS, and transactions that decrease liabilities as repayments, reductions, withdrawals, redemptions, liquidations, or extinguishments of liabilities.
Paragraph 9.5 of the IMF GFSM 2014 notes that transactions in financial assets and liabilities explain how net lending / net borrowing is financed by means of changes in holdings of financial assets and liabilities, that is, total financing. Paragraph 9.3 of the IMF GFSM 2014 notes the following important types of transactions:
- Transactions involving revenue, expense, the transfer of economic ownership of a good or non-financial asset, or the provision of a service or labour - these almost always entail a counterpart entry in transactions in financial assets and liabilities for means of payment or claims on future means of payment. Even many transactions in kind (such as barter transactions and remuneration in kind), could conceptually lead to counterpart transactions in financial assets and / or liabilities when the timing of the exchange does not coincide. The sale of a good, service, or asset may have as its counterpart a change in currency or transferable deposit.
- New financial claims - these are often created by transactions in which a creditor advances funds to a debtor. The creditor then acquires a financial asset and the debtor incurs a liability.
- Some transactions in financial assets and liabilities are simply exchanges of financial instruments.
- Financial claims terminated by transactions - in some cases, the debtor pays the creditor the funds stipulated by the financial instrument, thereby terminating the claim. In other cases, the debtor buys its own instrument in the market.
- Accrued interest - this is deemed to be reinvested in an additional quantity of the underlying financial instrument by means of a transaction.
- The trading and settlement of financial derivative contracts.