Other Economic Flows 251
10.27 Prices of bonds may also change because of
a change in the creditworthiness of the issuer or guar-
antor. Such changes give rise to holding gains.
10.28 As explained in paragraphs 6.76–6.77, when
the amount to be paid at maturity or when the cou-
pon payments and the amount to be paid at maturity
are indexed to a narrow index (e.g., a gold index) that
includes a holding gain motive, any deviation of the
underlying index from the originally expected path
leads to holding gains or losses.
10.29 Holding gains or losses may accrue on bills in
the same way as for bonds. However, because bills are
short-term debt securities with much shorter times to
maturity, the holding gains generated by interest rate
changes are oft en much smaller than on bonds with
the same face values.
Equity and investment fund shares (4205, 4215, 4225, 4305, 4315, 4325)
10.30 General government units may have fi nan-
cial assets or liabilities in the form of equity and invest-
ment fund shares. For example, a general government
unit may own all or part of the equity of a public cor-
poration or the equity of a quasi-corporation. As with
any other asset, a change in the monetary value of
these fi nancial assets resulting from price changes is a
holding gain or loss.
10.31 Several events can aff ect the valuation of
shares and other equity. For purposes of explanation,
a distinction is made between:
- Shares issued by incorporated corporations that
are listed (publicly traded) and unlisted shares
whose value can be otherwise independently
determined - Unlisted shares issued by incorporated corpo-
rations whose value cannot be independently
determined and other equity of unincorporated
enterprises, such as quasi-corporations.
10.32 If the shares of a public corporation are
publicly traded or their value can be independently
determined, then the holding gains or losses of the
government unit or other public corporation that
owns the shares are determined by reference to the
market price per share or the independently deter-
mined price per share. Several factors may aff ect the
market price per share, such as market perceptions on
the profi tability of the corporation and when shares
go ex-dividend. Valuation changes in shares are re-
corded as holding gains and losses.
10.33 As explained in paragraph 7.229, net worth
is zero for quasi-corporations^9 and for public cor-
porations for which the value of shares cannot be
independently determined (most likely because the
controlling government unit owns all of the shares). In
these cases, the total value of the implicit equity of the
quasi-corporation or shares of the corporation is equal
to the total value of its assets minus the total value of
its liabilities other than equity. As a result, a holding
gain equal to the change in the total value of this mea-
sure of the equity needs to be recorded, taking into ac-
count all retained earnings, and other additions to and
withdrawals from equity that may have occurred.
10.34 As mentioned in paragraphs 5.121 and
6.119, reinvested earnings on investment fund shares
or of a foreign direct investment enterprise are treated
as a type of property income and not holding gains.Insurance, pension, and standardized
guarantee schemes (4206, 4216, 4226,
4306, 4316, 4326)
10.35 When the reserves for nonlife insurance and
standardized guarantee schemes are denominated
in domestic currency, there are generally no holding
gains and losses, just as there are none for currency or
deposits and loans. In some exceptions, if an amount
for a claim outstanding has been agreed upon and it has
been agreed that it will be indexed pending payment,
then there may be a holding gain or loss recorded for it.
10.36 Liabilities for pension entitlements include
liabilities for the future payment of pensions and
other retirement benefi ts of defi ned-benefi t schemes.
Th e value of these liabilities can change for several
reasons, one of which is the passage of time. Th e li-
ability is computed as the present value of the future
benefi ts, and it will increase each period because
there is one fewer period over which it is discounted.
In GFS, this increase is treated as a property expense
for investment income disbursements (2813) (see para-
graphs 6.113–6.118).
10.37 In GFS, a holding gain is recorded with re-
spect to the liability for a defi ned-benefi t pension(^9) Because quasi-corporations do not issue shares, market prices do
not apply to them.