Part C - Valuation of transactions in financial assets and liabilities
In Australian GFS, the value of an acquisition or disposal of an existing financial asset or liability is its exchange value, which is the current market value. For debt instruments, the market value is conceptually equal to the required future payments of principal and contractual interest discounted at the existing market yield. The use of the current market value as the basis of the valuation of transactions in financial assets and liabilities in GFS is in line with the creditor approach. The creditor approach assumes that future interest expense is recalculated each time there is a change in the interest rate. An increase in the market interest rate leads to a decrease in the market value of the instrument for the creditor, and a corresponding holding gain for the debtor. If there are no further changes in the interest rate, then the gradual increases in the market value of the instrument over the remaining period will be treated as interest expenses not elsewhere classified (ETF 1279, COFOG-A, SDC). The valuation of financial assets and liabilities (including the current market value and the creditor approach) is further discussed in Chapter 8 Part D of this manual.
The value of transactions in financial assets can sometimes be determined by the value of the counterpart transaction. For example, the initial value of a loan resulting from a financial lease is the current market value of the non-financial asset that is leased. The value of an account payable resulting from the purchase of goods or services is the current market value of the goods acquired or services received.
Service charges, fees and commissions on transactions in financial assets and liabilities
All service charges, fees, commissions, and similar payments for services provided in carrying out transactions in financial assets and liabilities, and any taxes payable on transactions in financial assets and liabilities are excluded from the value of the transaction in the financial asset or liability. Paragraph 9.8 of the IMF GFSM 2014 indicates that this is because these are expenses and should be recorded as use of goods and services (ETF 1233, COFOG-A, SDC) in GFS.
The valuation transactions in financial assets and liabilities in foreign currency
For Australian GFS purposes, the value of transactions expressed in a foreign currency need to be converted to the domestic currency using the midpoint of the buying and selling exchange rates at the time that the transaction takes place. If a transaction expressed in a foreign currency involves the creation of a financial asset or liability, such as other accounts receivable / payable, and is followed by a second transaction in the same foreign currency that extinguishes the financial asset or liability, then both transactions are valued at the exchange rates effective when each takes place. Any difference in the value of the portion between the two transactions due to changes in the exchange rate is recorded as holding gains and losses on financial assets (ETF 5111, TALC) or holding gains and losses on liabilities (ETF 5113, TALC).
The valuation of transactions in financial assets and liabilities in international statistics
The IMF GFSM 2014 and the 2008 SNA value transactions in debt instruments using the nominal value, under the debtor approach. The nominal value is conceptually equal to the required future payments of principal and interest discounted at the contractual interest rate. The debtor approach assumes that interest payments are fixed in advance, and accrued interest is determined using the original yield-to-maturity which is established at the time of the security issuance. In contrast to the international standards, the ABS considers the current market value (under the creditor approach) as a more accurate measurement of the value of assets and transactions in financial assets and liabilities.
The essential difference between nominal value and the market value is the use of current yield instead of contractual rates as the discount rate applicable. The use of historical (contractual) interest rates under the nominal value to determine current valuation is not supported in Australian macroeconomic statistics. The ABS departs from the international standards and applies the market valuation principle in all circumstances in ABS economic statistics.