3.

Classification of Financial
Instruments


C
C
l assi f i cat i on of f i nanci al i nst r ument s and i dent i f i cat i on of
t hei r nat ur e i s one of t he most i mpor t ant phases f or compi l at i on
and pr esent at i on of monet ar y st at i st i cs. Li ke ot her
cl assi f i cat i ons used i n monet ar y st at i st i cs, i t i s al so advi sabl e her e t o
f ol l ow i nt er nat i onal st andar ds t hat woul d hel p t o make st at i st i cs
compar abl e acr oss count r i es and ensur e i t s uni t y. I n car r yi ng out
cl assi f i cat i on, t her e wi l l be a need t o consi der f eat ur es of a count r y s
banki ng and f i nanci al syst em payi ng a due r egar d t o t hei r devel opment
pr ospect s.

Financial instruments ar e f i nanci al cont r act s of di f f er ent nat ur e
made bet ween i nst i t ut i onal uni t s. These compr i se t he f ul l r ange of
f i nanci al cl ai ms and l i abi l i t i es bet ween i nst i t ut i onal uni t s, i ncl udi ng
cont i ngent l i abi l i t i es l i ke guar ant ees, commi t ment s, et c. Fi nanci al asset
i s def i ned as any cont r act f r om whi ch a f i nanci al cl ai m may der i ve f or
one par t y and a f i nanci al l i abi l i t y or par t i ci pat i on i n equi t y f or
anot her .
Financial instrument can exi st onl y bet ween t wo i nst i t ut i onal uni t s.
Wher e f i nanci al i nst r ument s ar e compounded, i . e. r epr esent a set of
sever al i nst r ument s, f or compi l at i on of st at i st i cs t her e wi l l be a need
t o di st i ngui sh t hem i nt o separ at e i nst r ument s so t hat each of t hem
i ncl udes onl y a si ngl e pai r of i nst i t ut i onal uni t s.
Financial assets ar e cont r act s t hat do not cont ai n cont i ngency,
i . e. , i r r espect i ve of any condi t i ons, gener at e f i nanci al cl ai ms havi ng
demonst r abl e val ue over whi ch owner shi p r i ght s ar e enf or ced, i ndi vi dual l y
or col l ect i vel y, and f r omwhi ch economi c benef i t s can be der i ved by usi ng
or hol di ng t hem.
The concept of financial instrument i s wi der t han t he concept of
financial asset as def i ned i n t he Syst em of National Accounts, 1993.
Thus, financial instruments ar e cl assi f i ed i nt o financial assets and
other financial instruments.
Cl assi f i cat i on of f i nanci al asset s i s based on t hei r t wo pr i nci pal
char act er i st i cs, l i qui di t y and l egal char act er i st i cs.


Classification of financial instruments:



FI NANCI AL
ASSETS
SDRs
Monet ar y gol d
Cur r ency
Deposi t s
Secur i t i es ot her t han shar es
Bor r owi ngs
Loans
Shar es and ot her equi t y
Ot her account s r ecei vabl e/ payabl e
Fi nanci al der i vat i ves
F
I
N
A
N
C
I
A
L

I
N
S
T
R
U
M
E
N
T
S


OTHER FI NANCI AL
I NSTRUMENTS
Let t er s of guar ant ee
Let t er s of cr edi t
Fi nanci al commi t ment s
Pl edged f i nanci al asset s
24





3 . 1 . M o n e t a r y G o l d a n d S D R s

Monet ar y gol d and SDRs, i ssued by t he I MF, ar e t he onl y f i nanci al
asset s f or whi ch t her e ar e no cor r espondi ng f i nanci al l i abi l i t i es.
Monetary gold - Monet ar y gol d consi st s onl y of st andar d bul l i ons of gol d
hel d by t he cent r al bank or gover nment as par t of of f i ci al r eser ves.
Monet ar y gol d, t her ef or e, can be a f i nanci al asset onl y f or t he
cent r al bank or gover nment . Tr ansact i ons wi t h monet ar y gol d ar e
oper at i ons on pur chase and sal e of gol d by aut hor i t i es i mpl ement i ng
monet ar y pol i cy. These t r ansact i ons ar e car r i ed out bet ween t he
cent r al banks onl y or bet ween t he cent r al banks and i nt er nat i onal
f i nanci al or gani zat i ons. For commer ci al banks, st andar d bul l i ons of
gol d ar e not t r eat ed as monet ar y gol d. Gol d denomi nat ed deposi t s ar e
t r eat ed as f i nanci al asset s and cl assi f i ed as gol d. Asset s
denomi nat ed i n gol d, whi ch ar e not t r eat ed as par t of of f i ci al
r eser ves, ar e cl assi f i ed as nonf i nanci al asset s.
Gol d and gol d denomi nat ed deposi t s hel d by nonf i nanci al uni t s and
f i nanci al cor por at i ons ( ot her t han t he cent r al bank) ar e t r eat ed as
nonmonet ar y gol d. Oper at i ons on gol d car r i ed out by ot her sect or s of
economy ar e t r eat ed as oper at i ons on acqui si t i on of val ues and
di sposal , and i t i s t r eat ed as nonf i nanci al asset .
SDRs SDRs ar e i nt er nat i onal r eser ve asset s
7
cr eat ed by t he I MF and
al l ocat ed t o member count r i es t o suppl ement exi st i ng of f i ci al
r eser ves. SDRs ar e not t r eat ed as t he I MF s l i abi l i t y. SDRs ar e hel d
onl y by t he I MF member count r i es and by a l i mi t ed number of
i nt er nat i onal f i nanci al or gani zat i ons. SDR hol di ngs ar e hel d
excl usi vel y by of f i ci al aut hor i t i es, whi ch ar e nor mal l y t he cent r al
banks. Tr ansact i ons i n SDRs bet ween t he I MF member s or bet ween t he
I MF and i t s member s ar e t r eat ed as f i nanci al t r ansact i ons. SDR
hol di ngs r epr esent uncondi t i onal r i ght s t o hol der s t o obt ai n f or ei gn
exchange or ot her r eser ve asset s f r omot her I MF member s.


3 . 2 C u r r e n c y a n d D e p o s i t s

Cur r ency and deposi t s ar e t he most l i qui d f i nanci al asset s
consi st i ng of not es and coi ns i n ci r cul at i on, al l t ypes of deposi t s i n
nat i onal cur r ency and f or ei gn cur r ency.

Currency - Cur r ency r epr esent s not es and coi ns i n ci r cul at i on, whi ch ar e
of f i xed nomi nal val ues and have no dat es of r epayment . I ssued not es
and coi ns ar e consi der ed l i abi l i t i es of t he cent r al bank. Gener al l y,
cur r ency i s used f or maki ng payment s. For st at i st i cal pur poses, i t
i s al ways necessar y t o di st i ngui sh bet ween not es and coi ns i ssued by
r esi dent and nonr esi dent cent r al banks, i . e. separ at e nat i onal
cur r ency f r om f or ei gn cur r ency. I f nat i onal cur r ency i s t he
count r y s ( t he cent r al bank s) l i abi l i t y, f or ei gn cur r ency i s ot her
count r i es l i abi l i t y.
Al l sect or s of economy and nonr esi dent s can hol d as an asset , but
onl y monet ar y aut hor i t i es or cent r al banks ar e aut hor i zed t o i ssue

7
Operations with the IMF are described in more detail in Section 6 of this Manual.
25
i t . I n many count r i es, onl y nat i onal cur r ency i s i ncl uded i n
monet ar y aggr egat es, as onl y t he nat i onal cur r ency can be used
di r ect l y f or ( l ocal ) t r ansact i ons bet ween r esi dent s. I n some
count r i es, however , f or ei gn cur r ency ci r cul at es al ong wi t h nat i onal
cur r ency, and hence i t i s i mpor t ant i n t he vi ew of monet ar y pol i cy
t o consi der f or ei gn cur r ency i n ci r cul at i on.
Some count r i es i ssue gol d and ot her pr eci ous met al - made coi ns,
whi ch t heor et i cal l y can be used as a means of payment . Nor mal l y,
such coi ns ar e hel d f or numi smat i c val ue. I f not i n act i ve
ci r cul at i on, such coi ns shoul d be cl assi f i ed as nonf i nanci al asset s.
Deposits - Deposi t s i ncl ude al l cl ai ms on t he cent r al bank and ot her
deposi t or y cor por at i ons, r epr esent ed as bank deposi t s. I n some
cases, ot her f i nanci al cor por at i ons may al so accept deposi t s.
Deposi t s of deposi t or y cor por at i ons can f al l i nt o t wo cat egor i es:
t r ansf er abl e deposi t s and ot her deposi t s ( nont r ansf er abl e deposi t s) .
Nor mal l y, separ at e sub- cat egor i es ar e used f or deposi t s denomi nat ed
i n nat i onal cur r ency and f or t hose i n f or ei gn cur r ency.
Transferable deposits - Tr ansf er abl e deposi t s ar e deposi t s ( i n nat i onal
and f or ei gn cur r ency) t hat ar e i ) subj ect t o payment on demand at
par and wi t hout penal t y or r est r i ct i on, i i ) di r ect l y usabl e f or
maki ng payment s by payment or der s, checks, car ds or ot her payment
f aci l i t i es, or ot her wi se usabl e as a means of payment or
ci r cul at i on. Tr ansf er abl e deposi t s compr i se t r ansf er abl e deposi t s
wi t h r esi dent and nonr esi dent f i nanci al cor por at i ons. Thi s cat egor y
compr i ses al so deposi t s t hat al l ow di r ect cash wi t hdr awal s but not
di r ect t r ansf er s t o t hi r d par t i es. Al l sect or s of economy and
nonr esi dent s ( t he r est of t he wor l d) can open and oper at e
t r ansf er abl e deposi t account s.
Other (nontransferable) deposits - Sub- cat egor y of ot her deposi t s
compr i ses al l t ypes of deposi t s ( i n nat i onal and f or ei gn cur r ency) ,
ot her t han t he t r ansf er abl e deposi t s. Ot her deposi t s ar e f i nanci al
i nt er medi ar i es deposi t s or l i abi l i t i es r epr esent ed by evi dence of
deposi t t hat cannot be used f or maki ng payment s at any t i me. These
ar e not exchangeabl e wi t h cash or t r ansf er abl e deposi t wi t hout
cer t ai n r est r i ct i ons or penal t y. Use of t hese deposi t s i s subj ect t o
cer t ai n r est r i ct i ons:
subj ect t o payment af t er a cer t ai n per i od of t i me or at any
moment , pr ovi ded cer t ai n cost s ar e i ncur r ed,
cannot ser ve as an i nst r ument f or maki ng di r ect payment s,
ot her r est r i ct i ons ( f r ozen account s, pl edged asset s, et c. ) can
occur .
Al l sect or s of economy and nonr esi dent s ( t he r est of t he wor l d)
can open and oper at e such account s.
Cat egor y of ot her deposi t s t ypi cal l y r epr esent :
t i me deposi t s,
nont r ansf er abl e deposi t s denomi nat ed i n f or ei gn cur r ency,
r epur chase agr eement s t hat ar e i ncl uded i n t he nat i onal measur es
of br oad money.


3 . 3 . S e c u r i t i e s O t h e r T h a n S h a r e s

26

Secur i t i es ot her t han shar es ar e negot i abl e i nst r ument s i n t he
f i nanci al mar ket ser vi ng as evi dence t hat uni t s i ssui ng such i nst r ument s
have assumed obl i gat i ons t o set t l e by means of pr ovi di ng cash, ot her
f i nanci al i nst r ument or some ot her i t em of economi c val ue. Secur i t i es
i ncl uded i n t hi s cat egor y ar e di f f er ent f r om shar es si nce t hese do not
vest t he secur i t y hol der wi t h t he owner shi p r i ght over t he i ssuer . Common
t ypes of secur i t i es ar e gover nment t r easur y bi l l s, gover nment bonds,
cor por at e bonds and debent ur es, commer ci al paper , cer t i f i cat es of
deposi t s i ssued by deposi t or y cor por at i ons and si mi l ar ot her i nst r ument s
t hat ar e nor mal l y sol d i n f i nanci al mar ket s. Loans or l i abi l i t i es t hat
have become negot i abl e de f act o shoul d al so be cl assi f i ed under t hi s
cat egor y.
A secur i t y pr ovi des evi dence of f i nanci al cl ai m on i t s i ssuer , and
speci f i es t he schedul e f or i nt er est payment s and pr i nci pal r epayment s. I n
t he monet ar y st at i st i cs, secur i t i es ar e cl assi f i ed as f ol l ows:
coupon basis securities, whose i nt er est or coupon payment s ar e
made dur i ng t he l i f e of t he i nst r ument , and t he pr i nci pal i s
r epai d at mat ur i t y;
amortized basis securities, whose i nt er est and pr i nci pal payment s
ar e made i n i nst al l ment s dur i ng t he l i f e of t he i nst r ument ;
discount, or zero coupon, basis securities, t hat ar e i ssued and
al l ocat ed at a pr i ce bel ow t he f ace val ue and r epai d at mat ur i t y
on f ace val ue;
deep discount basis securities, t hat ar e i ssued and al l ocat ed at a
pr i ce bel ow f ace val ue, and t he pr i nci pal and a subst ant i al par t
of t he i nt er est i s pai d at mat ur i t y;
indexed basis securities, whi ch t i e t he amount of i nt er est and/ or
pr i nci pal payment t o a r ef er ence i ndex such as a pr i ce i ndex or an
exchange r at e i ndex.
Pr ef er r ed shar es t hat pay a f i xed i ncome but do not pr ovi de
owner shi p r i ght over t he i ssuer ar e cl assi f i ed as secur i t i es ot her t han
shar es. Bonds t hat ar e conver t i bl e i nt o shar es shoul d al so be cl assi f i ed
under t hi s cat egor y.
Secur i t i zat i on of f i nanci al asset i s somet i mes used i n t he cr eat i on
of secur i t i es ot her t han shar es. Secur i t i zat i on r epr esent s t he i ssuance
of secur i t i es t hat ar e backed by f i nanci al asset s such as mor t gage l oans,
cl ai ms on cr edi t car d hol der s and ot her t ypes of l oans. Such f i nanci al
asset s cont i nue t o be shown i n t he bal ance sheet as asset s of t he
acqui r er s, whi l e t he i ssuer s r ecor d t hei r r espect i ve l i abi l i t i es as
secur i t i es.
Banker s accept ance i s t r eat ed as a f i nanci al asset even t hough no
f unds may have been exchanged or moved. A banker s accept ance i nvol ves
t he accept ance by a f i nanci al cor por at i on of a bi l l of exchange t o pay a
speci f i c amount at a speci f i ed dat e. The banker s accept ance r epr esent s
an uncondi t i onal cl ai m on t he par t of t he hol der and an uncondi t i onal
l i abi l i t y on t he par t of t he accept i ng bank.
An al t er nat i ve cl assi f i cat i on of shor t - , medi um- and l ong- t er m
secur i t i es ot her t han shar es i s al so i mpl ement ed as f ol l ows:
Short-term securities - t hi s sub- cat egor y compr i ses secur i t i es wi t h
mat ur i t y of one- year or l ess.
Medium-term securities cr i t er i a f or cl assi f yi ng secur i t i es under t hi s
sub- cat egor y depend on pr act i ces appl i ed i n f i nanci al mar ket s of t he
gi ven count r y. Nor mal l y, t hi s sub- cat egor y i ncl udes secur i t i es wi t h
27
mat ur i t y f r om1 t o 5 year s.
Long-term securities - t hi s sub- cat egor y compr i ses secur i t i es wi t h
mat ur i t y l onger t han t hose of shor t - and medi um- t er msecur i t i es.


3 . 4 . B o r r o w i n g s
Nor mal l y, bor r owi ngs ar e not consi der ed as a separ at e f i nanci al
i nst r ument . Bor r owi ng i s car r i ed out t hr ough ot her f i nanci al i nst r ument s,
f or exampl e, t hr ough l oans, deposi t s, et c. Never t hel ess, because of
pecul i ar i t i es of Ar meni an Law, bor r owi ngs i n Ar meni a can be t r eat ed as a
separ at e f i ni cal i nst r ument , as t hese ar e sour ce of f unds f or cr edi t
i nst i t ut i ons. Accor di ng t o Ar meni an Ci vi l Code, t he l ender gi ves t he
bor r ower money under t he l oan agr eement , and t he bor r ower under t akes t o
r et ur n t he r ecei ved amount t o t he l ender as and when speci f i ed by t he
agr eement . I f t he mat ur i t y dat e i s not speci f i ed or i t i s speci f i ed as
demand, t he amount of t he l oan shal l be r et ur ned wi t hi n t hi r t y days upon
t he l ender ' s r equest , unl ess ot her wi se pr ovi ded by t he agr eement . Thus,
t he bor r owi ngs as wel l as deposi t s can be bot h demand and t i me.
Opposed t o t i me deposi t s, bor r owi ngs ar e l ess l i qui d, because
l ender ' s cl ai m on col l ect i on of l oan i s due t o some r est r i ct i ons, unl ess
ot her wi se pr ovi ded by t he agr eement . I n a bor r owi ng t r ansact i on, t he
l ender wi l l ear n i nt er est agai nst t he amount pr ovi ded.


3 . 5 . L o a n s




3.5.1. Loans
Loans ar e f i nanci al asset s t hat ar e
cr eat ed when a cr edi t or l ends f unds di r ect l y t o a debt or
( bor r ower ) ,
evi denced by non- negot i abl e document s.
Thi s sub- cat egor y of f i nanci al asset s compr i ses al l l oans and
advances ( except account s r ecei vabl e/ payabl e, whi ch ar e t r eat ed as a
separ at e sub- cat egor y of f i nanci al asset s) ext ended t o var i ous sect or s of
t he economy by f i nanci al cor por at i ons, gover nment s, and, i n some
count r i es, by ot her sect or s.
Short-term loans shor t - t er m l oans nor mal l y i nvol ve l oans wi t h mat ur i t y
of one year or l ess. However , f or r econci l i at i on of di f f er ent
pr act i ces bet ween t he count r i es, shor t - t er m l oans can be def i ned
i ncl udi ng l oans wi t h mat ur i t y of up t o t wo year s. Al l l oans t hat
wi l l mat ur e upon r equest ar e cl assi f i ed as shor t - t er m, even i f i t i s
expect ed t hat t hese l oans wi l l not be r epai d wi t hi n one year .
Medium-term loans - dependi ng on pr act i ces appl i ed i n count r i es, l oans
wi t h mat ur i t y f r om1 t o 5 year s ar e cl assi f i ed as medi um- t er ml oans.
Long-term loans l ong- t er m l oans i ncl ude t he l oans wi t h mat ur i t y t hat
exceeds t hose of shor t - and medi um- t er ml oans.
Accor di ng t o st at i st i cal cl assi f i cat i on, r epo agr eement s, f i nanci al
l easi ng, f act or i ng oper at i ons and ot her si mi l ar agr eement s ar e cl assi f i ed
under t he cat egor y of l oans.

3.5.2 Repurchase Agreements
28

A repurchase agreement ( r epo) i s an ar r angement i nvol vi ng t he sal e
of secur i t i es by one par t y t o anot her wi t h a commi t ment t o r epur chase t he
same or si mi l ar secur i t i es of t he same vol ume on a speci f i ed f ut ur e dat e.
The par t y t hat buys secur i t i es r et ai ns t he r i ght of car r yi ng out
t r ansact i ons wi t h r epo- secur i t i es unt i l t he r epur chase ( r esal e) dat e, and
shoul d r esel l si mi l ar secur i t i es t o t he ot her par t y at expi r y of t he
agr eement . I n t hi s agr eement , t he condi t i on of r epur chase makes t he r epo
agr eement si mi l ar t o col l at er al i zed l oans r at her t han t o pur chase and
sal e of secur i t i es. Ther ef or e, t he sel l er of secur i t i es shoul d cont i nue
t o r ef l ect t he sol d secur i t i es i n i t s bal ance sheet . However , as r epo
agr eement s cont ai n a component of pur chase and sal e of secur i t i es, i n
some cases, t hey ar e r ecor ded as bot h l endi ng and pur chase and sal e of
secur i t i es. Thi s pr act i ce i s appl i ed al so i n t he banki ng syst em of t he
Republ i c of Ar meni a.

3.5.3. Swap agreements
8

Though swap agr eement s ar e t r eat ed as f i nanci al der i vat i ves, t hey
can i n some cases be cl oser t o r epur chase agr eement s, dependi ng on t he
way t hese ar e i mpl ement ed and t he t er ms of t he gi ven t r ansact i on.

The f or ms of swap agr eement s ar e:

Gold swaps ar e f or ms of r epur chase agr eement s. They occur when gol d
i s exchanged f or f or ei gn exchange at a cer t ai n pr i ce, wi t h a commi t ment
t o r epur chase t he gol d at a f i xed pr i ce on a speci f i ed f ut ur e dat e. Gol d
swaps shoul d be r ecor ded as col l at er al i zed l oans. The col l at er al i zed gol d
shoul d r emai n on t he bal ance sheet of t he or i gi nal owner ( monet ar y gol d -
i n case of t he Cent r al Bank) .

The Cent r al Bank oper at es currency swaps when t he par t i es agr ee t o
exchange Ar meni an dr am f or f or ei gn cur r ency on spot t er ms pr ovi ded t hat
t he f or war d exchange r at e i s not speci f i ed but t he i ni t i al cost of
t r ansact i on i n Ar meni an dr ams i s speci f i ed i nst ead, i ncl udi ng swap
i nt er est r at e as pr ovi ded by t he agr eement . Thus, cur r ency swap st ands
ver y cl ose t o t he l oan pl edged by f or ei gn cur r ency or t o t he f or ei gn
cur r ency r epur chase agr eement s.

3.5.4. Leasing operations

Leasi ng i nvol ves an agr eement wher eby a par t y ( l essor ) conveys t o
t he ot her par t y ( l essee) t he r i ght t o use cer t ai n i nvent or y ( bui l di ng,
pr emi ses, equi pment , et c) f or a speci f i ed per i od and on agr eed t er ms.
Nor mal l y such an ar r angement pr esumes per i odi c payment s f or t he equi pment
under use i n t he dur at i on of i t s usage. Obj ect s of l easi ng oper at i ons may
i ncl ude f i xed asset s such as vehi cl es, equi pment , t echnol ogi cal
f aci l i t i es, means of t r anspor t , i nf or mat i on syst ems and ot her si mi l ar
f aci l i t i es.
Pr esent economi c pr act i ce pr ovi des f or di f f er ent t ypes of l easi ng,
each of whi ch has i t s pecul i ar i t y. However , t he common f or ms of l easi ng
ar e oper at i ng l ease and f i nanci al l ease. Onl y f i nanci al l ease, whi ch i s

8
The description of swap as derivative instrument is given in paragraph 3.8.6 of
"Contingent and Derivative Instruments".
29
cl ose by i t s nat ur e t o l oan, i s cl assi f i ed under t he sub- cat egor y of
l oans.
Oper at i ng l ease i s an agr eement on cur r ent l easi ng. Nor mal l y, t he
per i od of t hi s agr eement i s shor t er t han t he per i od of usage
( amor t i zat i on) of t he l eased asset . Thus, t he f ee st i pul at ed i n t he
agr eement does not cover f ul l val ue of t he asset , t her ef or e, t he asset
can be l eased f or sever al t i mes. Speci f i ci t y of oper at i ng l ease l i es i n
pr emat ur e t er mi nat i on of t he agr eement by t he l essee. Common obj ect s of
t he oper at i ng l ease i ncl ude non- dur abl e i t ems ( comput er s, copi er s,
var i ous or gani zer s, et c. ) and equi pment r equi r i ng const ant t echni cal
mai nt enance ( car s, ai r pl anes, r ai l r oad and sea t r anspor t ) .
Basi cal l y, f i nanci al l ease r epr esent s an al t er nat i ve met hod of
f i nanci ng acqui si t i on of f i xed asset s ( basi cal l y vehi cl es and equi pment ) .
I t i s a l ong- t er m agr eement bet ween a l essor and a l essee wher eby t he
l essor acqui r es t he vehi cl es and equi pment and suppl i es t hem t o t he
l essee. The l essee obl i ges t o pay per i odi cal payment s dur i ng t he cour se
of t he agr eement t o cover al l expenses of t he l essor , i ncl udi ng f ul l
val ue of equi pment , addi t i onal expendi t ur es and i nt er est s ( i ncome) .
Speci f i ci t y of f i nanci al l ease l i es i n t hi r d- par t y par t i ci pat i on,
r el at i vel y l onger per i od of t he agr eement , whi ch i s equal t o t he l i f e of
t he equi pment .
Ther e i s anot her pecul i ar i t y of f i nanci al l ease wher eby al l r i sks
and r ewar ds r el at ed t o owner shi p r i ght s over t he speci f i c asset ar e
act ual l y t r ansf er r ed f r omt he l essor - t he l egal owner of t he goods - t o
t he l essee, t he user of t he goods. Thi s i mpl i es t hat change of owner shi p
has de f act o occur r ed, and t he l essor has acqui r ed a f i nanci al cl ai m,
i nst ead of i t s pr oper t y, on t he l essee. Ther ef or e, f i nanci al l easi ng
st at i st i cal l y i s cl assi f i ed as a l oan.
As was not ed, f i nanci al l easi ng i s an al t er nat i ve f i nanci ng f or
acqui si t i on of f i xed asset s. But , unl i ke t he t r adi t i onal ways of
acqui r i ng f unds ( bank l oan, i ssuance of secur i t i es, et c. ) , l easi ng
oper at i ons ar e not shown i n t he l essee s bal ance sheet , si nce f r om a
l egal poi nt of vi ew, t he owner of t he asset r emai ns t he l easi ng company
t hat cal cul at es depr eci at i on and pays r espect i ve owner shi p t axes. An
ent er pr i se t hat t akes l oan bear s an obl i gat i on ( i . e. r epayment of t he
l oan) si mi l ar t o an ent er pr i se t hat acqui r es equi pment does ( i . e. l ease
f ee) .

3.5.5. Factoring
Fact or i ng i s obt ai ni ng of cr edi t or s r i ght s f or payment document s by
a bank ( a f act or ) cr eat ed on pr ovi si ons of t r ade cr edi t f or sel l i ng goods
and ser vi ces bet ween economi c uni t s. Thi s i s al so accompani ed by
account i ng, i nf or mat i on, i nsur ance and ot her ser vi ces. Par t i es i n
f act or i ng oper at i ons i ncl ude t he f act or - bank, cust omer of t he f act or -
bank, i . e. t he suppl i er ( or i gi nal l ender ) and t he payer ( debt or ) . The
suppl i er conveys l egal cl ai m on i t s cust omer t o t he f act or - bank t o
r ecei ve payment s by way of t r ansf er of such cl ai m.
Obj ect s of f act or i ng may i ncl ude i ) f i nanci al cl ai ms t hat ar e
over due ( exi st i ng cl ai m) , and i i ) f i nanci al cl ai ms t o be gener at ed at a
f ut ur e dat e ( f ut ur e cl ai m) .
Banks, ot her cr edi t i nst i t ut i ons and l i censed commer ci al
or gani zat i ons can be i nvol ved i n f act or i ng agr eement s.
Fact or i ng oper at i ons may cont ai n t he f ol l owi ng t er ms:
f ul l or par t i al advance payment s agai nst l i abi l i t i es i n t he f or m
30

of f act or i ng l oan by t he f act or - bank, wi t h t he r i ght t o r ecl ai m
t he l oan f r omt he suppl i er ;
accept ance of t he suppl i er s cr edi t r i sk wi t hout t he r i ght t o
r ecl ai m t he amount , t he f act or - bank makes advance payment f or
l i abi l i t i es t hat shoul d be r ei mbur sed by t he debt or agai nst
payment document s;
accept ance of t he suppl i er s cr edi t r i sk when t he f act or - bank
makes no advance payment but guar ant ees f ul l payment s on a
speci f i c dat e;
management of f act or i ng l oan, by col l ect i ng l i abi l i t i es;
book- keepi ng of t he suppl i er s al l t r ansact i ons or a par t of t hem,
dur i ng t he cour se of t he f act or i ng agr eement .
Essent i al l y, f act or i ng i s a t ype of l oan, wher eby t he r el evant
or gani zat i ons acqui r e t he suppl i er s r ecei vabl es and col l ect t hem f r om
t he debt or .
3 . 6 . S h a r e s a n d O t h e r E q u i t y

Shar es ar e f i nanci al i nst r ument s t hat r epr esent or pr ovi de evi dence
on owner shi p r i ght s of t he hol der s over ent er pr i ses or or gani zat i ons,
i ncl udi ng f i nanci al i nst i t ut i ons. Shar es and ot her equi t y compr i se al l
i nst r ument s and r ecor ds acknowl edgi ng, af t er t he cl ai ms of al l cr edi t or s
have been met , cl ai ms on t he r esi dual val ue of a cor por at i on ( compani es,
cor por at i ons) . Nor mal l y, t hese i nst r ument s ent i t l e t he hol der s bot h of
di st r i but ed pr of i t s of ent er pr i ses or or gani zat i ons, and t he r esi dual
val ue of t he asset s i n t he event of l i qui dat i on. Owner shi p of equi t y i s
usual l y evi denced by shar es, st ocks, par t i ci pat i on' s and si mi l ar
document s. Thi s cat egor y al so i ncl udes pr ef er r ed shar es t hat pr ovi de f or
par t i ci pat i on i n t he r esi dual val ue on di ssol ut i on of an ent er pr i se.
Di vi dends ar e a f or mof pr oper t y i ncome t o whi ch shar ehol der s become
ent i t l ed. Shar es do not pr ovi de pr edet er mi ned pr oper t y i ncome.
Nonet hel ess, di vi dends on pr ef er r ed shar es ar e det er mi ned i n advance.
Types of equi t y ar e:
or di nar y shar es t hat pr ovi de f or owner shi p r i ght i n an ent er pr i se
or cor por at i on;
pr ef er r ed shar es t hat pr ovi de r i ght f or cl ai m over r esi dual val ue
of an ent er pr i se,
equi t y par t i ci pat i on i n l i mi t ed l i abi l i t y compani es.
I n t he cont ext of t he monet ar y st at i st i cs, f i nanci al cor por at i ons
capi t al i n t he f or m of shar es and ot her equi t y i s di vi ded i nt o separ at e
gr oups as f ol l ows:
Funds cont r i but ed by owner s i ncl ude t ot al amount f r om t he i ni t i al
and any subsequent i ssuance of shar es or ot her f or ms of owner shi p
of cor por at i ons ( st at ut or y f und) .
Ret ai ned ear ni ngs const i t ut e al l af t er - t ax pr of i t s t hat have not
been di st r i but ed t o shar ehol der s or appr opr i at ed as gener al or
speci al r eser ves.
Gener al or speci al r eser ves ar e appr opr i at i ons of r et ai ned
ear ni ngs f or speci al pur poses.
Reval uat i on r eser ves ar e t he bank s unr eal i zed pr of i t / l oss due t o
change i n mar ket val ue of f i xed asset s, f or ei gn cur r ency,
secur i t i es, and pr eci ous met al s.
SDR al l ocat i on r epr esent s t he SDRs al l ocat ed t o cent r al banks by
t he I MF.

31

3 . 7 O t h e r A c c o u n t s R e c e i v a b l e / P a y a b l e

Account s r ecei vabl e/ payabl e i ncl ude t r ade cr edi t s, advances and
ot her r ecei vabl es or payabl es. Tr ade cr edi t s compr i se t r ade cr edi t
ext ended di r ect l y t o buyer s of goods and ser vi ces ( ent er pr i ses,
gover nment , NPI SHs, househol ds, and nonr esi dent s) . Advances ar e
pr epayment s made f or wor k t hat i s i n pr ogr ess or f or pur chase of goods
and ser vi ces. Any agr eement , whi ch does not assume di r ect payment by cash
or ot her f i nanci al i nst r ument t o pur chase goods or ser vi ces, wi l l cr eat e
a t r ade cr edi t ext ended by t he sel l er t o t he buyer . Her e, i t does not
i nvol ve l oans acqui r ed t o f i nance t he t r ade cr edi t si nce t hese cr edi t s
ar e cl assi f i ed under t he cat egor y of l oans. Thi s cat egor y i ncl udes onl y
di r ect t r ade cr edi t s and advances.
Thi s cat egor y i ncl udes al so i t ems such as debt or s and cr edi t or s, t ax
l i abi l i t i es and ot her account s r ecei vabl e/ payabl e.





3 . 8 . C o n t i n g e n t a n d D e r i v a t i v e I n s t r u m e n t s

3.8.1. Contingent Instruments
Ther e ar e f or ms of cont r act ual f i nanci al ar r angement s i n whi ch a
f i nanci al cl ai m depends on a cer t ai n condi t i on or condi t i ons. Such
t r ansact i ons nor mal l y do not have a t r ansf er abl e val ue.
Al t hough cont i ngent i nst r ument s ar e not di r ect l y i ncl uded i n t he
monet ar y st at i st i cs, t he compi l at i on of summar y i nf or mat i on on such
i nst r ument s may be of i mpor t ance i n anal yzi ng a count r y s or a sect or s
f i nanci al posi t i on and r el at i ons, si nce such i nst r ument s coul d i n f ut ur e
gi ve r i se t o acqui si t i on of var i ous asset s or cr eat i on of l i abi l i t i es
t hat mi ght not abl y af f ect f i nanci al f l ows and over al l condi t i on of t he
gi ven ent i t y. I n some cases, a need f or st at i st i cal i nf or mat i on on t he
pot ent i al l i abi l i t i es of ent i t i es, r ef l ect ed i n cont i ngent i nst r ument s,
may ar i se f or count r y s pol i cymaki ng anal ysi s. Thi s ki nd of st at i st i cs i s
mor e appr opr i at e t o col l ect and cl assi f y by guar ant ee pr ovi der s, unl i ke
t he ot her cases, when col l ect i on and compi l at i on ar e made by t ypes of
i nst r ument s.
Cont i ngent f i nanci al i nst r ument s i ncl ude guar ant ees, f i nanci al
commi t ment s, l et t er s of cr edi t , f i nanci al col l at er al , l i nes of cr edi t ,
et c. Cl ai ms or l i abi l i t i es on al l t hese i nst r ument s wi l l ar i se onl y i f
cer t ai n condi t i ons ar e met . For i nst ance, t he bank wi l l make a payment on
a guar ant ee onl y i f t he par t y, whi ch i s r eci pi ent of t he guar ant ee, f ai l s
t o meet i t s l i abi l i t i es. Payment s on t he l et t er of cr edi t wi l l be made i n
t he event when t he r espect i ve document s ar e pr esent ed. Col l at er al i zed
f i nanci al asset s may become t he bank s pr oper t y i f t he par t y t hat has
sol d t hem i s unabl e t o r epur chase t hem. Li ne of cr edi t wi l l become a
f i nanci al asset s or l i abi l i t y onl y i f t he f unds ar e act ual l y advanced.
Cl assi f i cat i on of cont i ngent i nst r ument s depends on t he nat ur e of a
speci f i c i nst r ument and pecul i ar i t i es of i t s usage i n t he gi ven count r y.

3.8.2 Guarantees
Guar ant ee i nvol ves an obl i gat i on by t he economi c ent i t y t o assume
t he ot her ent i t y s f i nanci al obl i gat i on i f t hat ot her par t y def aul t s. To
i ssuer , a guar ant ee i s not t r eat ed as a f i nanci al l i abi l i t y as f ar as t he
par t y, t o whomt he guar ant ee has been i ssued, has not shown i t s i nabi l i t y
32

t o meet such a l i abi l i t y. Ther ef or e, unt i l avai l abi l i t y of t hi s
condi t i on, l et t er s of guar ant ee wi l l be r ecor ded as of f - bal ance sheet
i t ems ( Appendi x 7. 1) .
Guar ant ees can be pr ovi ded by cent r al banks, gover nment s, f i nanci al
cor por at i ons and, i n some cases, ot her or gani zat i ons. These can be of
cer t ai n i mpor t ance al so i n t he cont ext of cl assi f i cat i on of ot her
f i nanci al i nst r ument s. For i nst ance, secur i t i es backed by t he gover nment
guar ant ee may be cl assi f i ed i n a way ot her t han common secur i t i es.
I n t he cont ext of t he monet ar y st at i st i cs, l i abi l i t i es ar e al ways
cl assi f i ed as t he l i abi l i t y of t he sect or t hat has assumed such, and not
t he l i abi l i t y of t he i ssuer of guar ant ee, unl ess t he i ssuer de f act o
acqui r es a l i abi l i t y t o make payment .
For a cor r ect r ef l ect i on of gover nment s r el at i onshi ps wi t h ot her
sect or s, i t i s somet i mes advi sabl e t o vi ew guar ant ees i ssued by t he
gover nment as a l i abi l i t y.





3.8.3. Letters of Credit
A l et t er of cr edi t i s an obl i gat i on t o make payment agai nst
document s r ecei ved. The amount s t o be pai d upon r ecei pt of t he document s
become l i abi l i t i es of t he bank. Let t er s of cr edi t ar e used t o f i nance
i nt er nat i onal t r ade oper at i ons.
Whi l e i mpor t i ng/ expor t i ng goods, r esi dent ent er pr i ses wi l l open
l et t er s of cr edi t wi t h Ar meni an r esi dent banks t hat ser vi ce t hem. These
banks ar e obl i ged t o pay amount s of t he t r ade cont r act s ( or pr esent a
demand f or payment ) t o t hei r f or ei gn count er par t i n t he event t he
del i ver y and ot her document s ar e r ecei ved as st i pul at ed i n t he l et t er of
cr edi t . The r ecei pt of t he del i ver y and ot her document s i s a st i pul at i on
under whi ch t he r esi dent bank acqui r es an obl i gat i on or cl ai m over t he
f or ei gn bank ( Appendi x 7. 2) .
3.8.4. Financial Commitments
Fi nanci al commi t ment s i nvol ve cont r act s bet ween i nst i t ut i onal uni t s
by whi ch t he ent i t i es make ar r angement s on speci f i c f i nanci al
t r ansact i ons t o be car r i ed out i n some f ut ur e t i me. The par t y assumi ng
l i abi l i t i es usual l y i s obl i ged t o pr ovi de f i nanci al asset s t o t he ot her
par t y i f speci f i c condi t i ons ar e met . Unl i ke t he l et t er s of guar ant ee
wher eby t he i ssuer of guar ant ee assumes l i abi l i t y of an ent i t y, t he
i ssuer of commi t ment wi l l be r esponsi bl e f or f ul f i l l ment of t he t er ms of
t he cont r act , i n case of t he commi t ment s. Nonf i nanci al commi t ment s wi l l
not be t r eat ed as f i nanci al i nst r ument s.
Commi t ment s can be of var i ous f or mand nat ur e, t her ef or e, i t i s ver y
har d t o set up a common appr oach of assessi ng t he r i ght s and obl i gat i ons
def i ned wi t hi n t hese commi t ment s. Al t hough not t r eat ed as f i nanci al
asset s, assessment of common t ypes of commi t ment s can be i mpor t ant f or
anal ysi s and eval uat i on of pot ent i al asset s and l i abi l i t i es. Li nes of
cr edi t and over dr af t s ar e t he most common f i nanci al commi t ment s.
A l i ne of cr edi t and/ or over dr af t pr ovi de t he bor r ower wi t h a
st andby guar ant ee f or t he f unds wi t hi n a speci f i c l i mi t and f or a
pr edet er mi ned per i od. Nonet hel ess, such f unds wi l l not be t r eat ed as
f i nanci al asset s unt i l t he de f act o ext ensi on of l oans ( Appendi x 7. 3) .

3.8.5. Pledged Financial Assets
33
Ther e i s a common pr act i ce t o pr ovi de l oans agai nst a cer t ai n
f i nanci al asset t aken as col l at er al . The r esi dual mat ur i t y of t he pl edged
asset shoul d be l onger t han t he dur at i on of t he l oan. Secur i t i es,
deposi t s, cur r ency, shar es, and si mi l ar asset s can qual i f y as pl edged
f i nanci al asset s agai nst l oans. Fi nanci al asset s ar e r et ur ned t o t he
or i gi nal owner as t he l oan i s r epai d. Thus, t he r i sks associ at ed wi t h
change i n mar ket val ue of pl edged f i nanci al asset wi l l st ay wi t h t he
or i gi nal owner t her eof ( t he bor r ower ) t hr oughout t he per i od of t he
col l at er al i zed l oan agr eement .
Consi der i ng t hat t he l ender bank i s not deemed t he owner of t he
pl edged f i nanci al asset as f ar as t he bor r ower has not acknowl edged hi s
i nabi l i t y t o r epay t he l oan, such asset s cannot be post ed i n t he bal ance
sheet of t he bank. I nst ead ext ended l oans ar e account ed as f i nanci al
asset s.
Loans, accr ued i nt er est s and r ecei vabl es wr i t t en of f t he bal ance
sheet ar e ver y si mi l ar t o cont i ngent i nst r ument s. Al t hough t hese cl ai ms
ar e not t r eat ed as bank s asset s, t hey can gener at e i ncome i f t he
bor r ower r epays t he l i abi l i t i es, whi ch have been r egar ded as bad.

3.8.6. Financial Derivatives
Fi nanci al der i vat i ves make an i nt egr al par t of i nt er nat i onal
f i nanci al mar ket s. The der i vat i ves mar ket s began t o devel op r api dl y
si nce t he ear l y 1980s, and had a subst ant i al i nf l uence on behavi or of
f i nanci al mar ket s. A number of quest i ons on how t he monet ar y and
macr oeconomi c i ssues ar e af f ect ed by der i vat i ves r emai n unanswer ed due t o
r api d gr owt h of f i nanci al mar ket s, l ack of t he r el evant st at i st i cs, and
t he absence of wel l - st r uct ur ed t heor i es. Pol i cymaker s shoul d have a cl ear
under st andi ng of t r ansact i ons wi t h der i vat i ves, as wel l as r eal i ze and
eval uat e t he l i nks bet ween der i vat i ves and or di nar y f i nanci al mar ket s.
Fi nanci al der i vat i ves ar e f i nanci al i nst r ument s t hat ar e l i nked t o
speci f i c asset s ( ot her f i nanci al i nst r ument s, goods) . By nat ur e, t hese
i nst r ument s ar e si mi l ar t o cont i ngent i nst r ument s. Cl ai ms and l i abi l i t i es
r el at ed t o f i nanci al i nst r ument s wi l l ar i se af t er a speci f i c per i od of
t i me. I n t hi s case, cont i ngency of an i nst r ument r el at es onl y t o t he t i me
r egar dl ess of occur r ence of any ot her event or condi t i on. Der i vat i ve
i nst r ument s ar e not consi der ed a f i nanci al cl ai m or l i abi l i t y f or t he
hol der t her eof at t he gi ven moment . However , f i nanci al der i vat i ves can be
t r aded i n t he mar ket and t hus t hey wi l l obt ai n a mar ket val ue, whi ch wi l l
depend on t he mar ket pr i ce of t he under l yi ng f i nanci al or nonf i nanci al
asset . Thus, t he pr i ce of a der i vat i ve i nst r ument der i ves f r om t he
pr i ce of t he under l yi ng asset . I n t he event when t he cont r act pr i ce of
t he under l yi ng f i nanci al asset i s pr ef er abl e t o t he cur r ent mar ket pr i ce,
t he der i vat i ve woul d have a posi t i ve mar ket val ue. I f a f i nanci al
der i vat i ve i nst r ument has a mar ket val ue i t must be r ecor ded i n t he
bal ance sheet as a f i nanci al asset ( r espect i ve exampl es ar e pr esent ed i n
Appendi x 7. 4) .
I n t he cont ext of t he monet ar y and f i nanci al st at i st i cs of Ar meni a,
account i ng of der i vat i ves i n banks bal ance sheet s depends on t he l evel
of deepness of t he f i nanci al mar ket . The der i vat i ve i nst r ument s ar e not
yet wi del y used i n t he count r y, as t he f i nanci al mar ket and t he
der i vat i ves mar ket , i n par t i cul ar , ar e under devel oped. The shar e of
f i nanci al der i vat i ves i n t he f i nanci al mar ket of Ar meni a i s negl i gi bl e.
34

Mor eover , because of no ci r cul at i on i n t he mar ket , t he der i vat i ve
i nst r ument s do not have mar ket val ue. Never t hel ess, t he r ecor di ng of
t hese t r ansact i ons i s made i n t he bal ance sheet s of f i nanci al
cor por at i ons. Bal ance sheet r ef l ect s t he r eal val ue of t he der i vat i ve
i nst r ument , t hat i s t he di f f er ence bet ween t he cont r act and mar ket pr i ces
of t he under l yi ng asset ( f i nanci al or r eal ) t i mes cont r act vol ume.
Dependi ng on t he di f f er ence bet ween cont r act and mar ket pr i ces ( ei t her
posi t i ve or negat i ve) t he cor r espondi ng posi t i ons on der i vat i ve
i nst r ument s can be r ef l ect ed i n bot h asset and l i abi l i t y account s.
Fi nanci al der i vat i ves f al l i nt o t he f ol l owi ng gr oups: f or war ds,
opt i ons and swaps.
Forward - I n a f or war d cont r act , t he count er par t i es agr ee t o exchange, on
a speci f i ed dat e, a speci f i ed quant i t y of an under l yi ng i t em
( f i nanci al or r eal asset ) at an agr eed- upon cont r act pr i ce.
Execut i on of a f or war d cont r act i s mandat or y but onl y i n t he case of
expi r y of t he per i od speci f i ed i n t he cont r act . Each of t he
count er par t i es has bot h cl ai m and l i abi l i t y upon execut i on. The net
val ue of t he i nst r ument ( di f f er ence bet ween cl ai ms and l i abi l i t i es)
i s zer o.
Option - The buyer of an opt i on acqui r es t he r i ght but not t he obl i gat i on
t o pur chase or sel l a speci f i c asset . Opt i ons t oo, cont ai n
cont i ngency: t he acqui r er of an opt i on may not wi sh t o exer ci se i t .
The buyer pays a cer t ai n amount t o t he sel l er of t he opt i on and t hus
acqui r es t he r i ght but not t he obl i gat i on t o sel l or pur chase a
speci f i ed i t em at an agr eed- upon pr i ce i n a speci f i ed per i od. The
buyer of an opt i on can sel l t he opt i on cont r act , i . e. t he r i ght t o
exer ci se t he opt i on, wher eby t he opt i on obt ai ns a mar ket val ue. The
st at i st i cal r ecor di ng of opt i ons shoul d be car r i ed out i n t he same
way as f or t he f or war ds.
Swap - A swap r epr esent s a spot pur chase ( sal e) of a f i nanci al asset wi t h
a condi t i on of f or war d sal e ( pur chase) . The swap oper at i on pr esent ed
i n t hi s sect i on def i ni t el y di f f er s f r om t he one pr esent ed i n
par agr aph 3. 5. 3, whi ch i s oper at ed mai nl y by t he CBA. Swap agr eement
i s a t ype of a f or war d, i n whi ch t he par t i es agr ee t o exchange
di f f er ent cur r enci es, t hat i s t o buy ( sel l ) any cur r ency f or anot her
cur r ency i n spot mar ket and concl udi ng at t he same t i me a r epur chase
agr eement on sal e ( pur chase) of t hese cur r enci es i n f or war d mar ket
at pr i ces det er mi ned bef or ehand, pur suant t o t he r ul es speci f i ed.
Der i vat i ves can be l i nked up not onl y t o f i nanci al asset s but al so
t o cer t ai n goods. The l i qui di t y of nonf i nanci al der i vat i ves vi s- - vi s
f i nanci al der i vat i ves i s l ower . Thi s however does not r ul e out t he
possi bi l i t y of pur chase and sal e of t he nonf i nanci al der i vat i ves. The
st at i st i cal r ecor di ng of nonf i nanci al der i vat i ve i nst r ument s ar e car r i ed
out i n t he same way as f or t he f i nanci al der i vat i ves.
I r r espect i ve of t he degr ee of devel opment of t he der i vat i ves mar ket
t he st at i st i cal r ecor di ng t her eof i s of gr eat i mpor t ance i n t he cont ext
of assessi ng i mpact of pot ent i al r i sks on banks and on t he monet ar y
pol i cy. Bot h cont i ngent and der i vat i ve i nst r ument s i ndi cat e t he pot ent i al
cl ai ms or l i abi l i t i es of t he bank t hat mi ght change i t s f i nanci al
condi t i on dr amat i cal l y. Ther ef or e, i t i s necessar y t o dr aw a due
at t ent i on t o i ssues concer ni ng devel opment , cl assi f i cat i on, account i ng
and st at i st i cal r ef l ect i on of such i nst r ument s.

35
References

1. Monet ar y and Fi nanci al St at i st i cs Manual , I MF, Washi ngt on D. C. , 2000.
2. Bal ance of Payment s Manual , f i f t h edi t i on, I MF, Washi ngt on D. C. , 1993.
3. Fi nanci al Der i vat i ves, A Suppl ement t o t he f i f t h edi t i on of t he Bal ance of
Payment s Manual , I MF, Washi ngt on D. C. , 2000.
4. Macr oeconomi c Account i ng and Anal ysi s i n Tr ansi t i on Economi es, Abdessat ar Ouanes
and Subhash Thakur , I MF, Washi ngt on D. C. , 1997.
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