196 Government Finance Statistics Manual 2014
earmarking of future revenue, such as receipts from
toll roads, to service debt securities issued by a gen-
eral government (or public sector) unit may resemble
securitization.
7.152 Stripped securities are securities that have
been transformed from a principal amount with cou-
pon payments into a series of zero-coupon bonds,
with a range of maturities matching the coupon pay-
ment date(s) and the redemption date of the principal
amount(s). Th e function of stripping is that investor
preferences for particular cash fl ows can be met in
ways diff erent from the mix of cash fl ows of the origi-
nal security. Th ere are two cases of stripped securities:- When a third party acquires the original se-
curities and uses them to back the issue of the
stripped securities; then new funds have been
raised and there is a new fi nancial instrument. - When no new funds are raised and the payments
on the original securities are stripped and mar-
keted separately by the issuer or through agents
(such as strip dealers) acting with the issuer’s
consent; in this case, there is no new instrument.
7.153 Index-linked securities are instruments for
which either the coupon payments (interest) or the
principal or both are linked to another item, such as
a price index, an interest rate, or the price of a com-
modity. Issues in the measurement of interest on
index-linked securities are discussed in paragraphs
6.75–6.78.
7.154 Debt securities traded (or tradable) in or-
ganized and other fi nancial markets—such as bills,
bonds, debentures, negotiable certifi cates of depos-
its, asset-backed securities—should be valued at
both market and nominal value. Debt securities are
shown in the balance sheet at market value. Th e nomi-
nal value is used to determine gross debt at nominal
value, which is shown as a memorandum item to the
GFS balance sheet. For a traded debt security, nominal
value can be determined from the value of the debt at
creation and subsequent economic fl ows, while mar-
ket value is based on the price at which it is traded in
a fi nancial market.
7.155 For debt securities that are tradable but for
which the market price is not readily observable, the
market value can be estimated by the discounted pres-
ent value method provided an appropriate discount
rate can be used (see paragraph 3.125). Th is and other
methods of estimating market value are explained in
the PSDS Guide, Box 2.2.
7.156 When securities are quoted on markets with
a buy-sell spread, the midpoint should be used to
value the instrument. Th e spread is an implicit service
fee of the market platform or dealer payable by buyers
and sellers.Loans (6204, 6214, 6224, 6304, 6314, 6324)
7.157 A loan is a fi nancial instrument that is cre-
ated when a creditor lends funds directly to a debtor
and receives a nonnegotiable document as evidence
of the asset.^41 Th is category includes overdraft s, mort-
gage loans, loans to fi nance trade credit and advances,
repurchase agreements, fi nancial assets and liabilities
created by fi nancial leases, and claims on or liabilities
to the IMF in the form of loans. Trade credit and ad-
vances and similar accounts payable/receivable are
not loans (see paragraph 7.225). Loans that have be-
come marketable in secondary markets should be re-
classifi ed under debt securities (see paragraph 7.149).
However, if traded only occasionally, the loan is not
reclassifi ed under debt securities.
7.158 A fi nancial lease involves imputing a loan. A
fi nancial lease is a contract under which the lessor, as
legal owner of an asset, conveys substantially all risks
and rewards of ownership of the asset to the lessee.
When goods are acquired under a fi nancial lease, the
lessee is deemed to be the owner, even though legally
the leased good remains the property of the lessor.
Th is is because the risks and rewards of ownership
have been, de facto, transferred to the lessee. Th is
change in ownership is deemed to have been fi nanced
by an imputed loan, which is an asset of the lessor and
a liability of the lessee.
7.159 A securities repurchase agreement (repo)
is an arrangement involving the sale of securities for
cash, at a specifi ed price, with a commitment to re-
purchase the same or similar securities at a fi xed price
either on a specifi ed future date (oft en one or a few
days hence) or with an open maturity.^42 Th e economic
nature of the transaction is that of a collateralized loan(^41) A loan is distinguished from a deposit on the basis of the repre-
sentation in the documents that evidence them.
(^42) An open maturity exists when both parties have the option to
agree daily to renew or terminate the agreement.