Financial derivatives

Financial derivatives are financial instruments the price of which is determined by the value of another asset. Such an asset, ie the underlying asset, can in principle be any other product, such as a foreign currency, an interest rate, a share, an index or a commodity. Financial derivatives include various options, warrants, forward contracts, futures and currency and interest rate swaps.

The transactions related to financial derivatives and the corresponding stocks of assets and liabilities are compiled separately, detached from underlying assets. Capital flows arising from financial derivatives are recorded as gross changes, so their flow data are broken down into assets and liabilities. Payment flows (cash flows) resulting from contracts entered into with non-residents and materialised during the reference period are recorded in gross changes. Such flows include, for example, premiums paid at inception of standardised derivative contracts, interim payments made during the life of the contracts (non-repayable margin payments) and net value payments made at the close of the contracts, as well as all net payments between the parties related to non standardised contracts.

The stock data of financial derivatives are broken down into assets and liabilities. The asset stock is fined as the sum of derivative contracts with a positive market value, and the liabilities stock, in turn, as the sum of derivative contracts with a negative market value. The market value of a contract is positive for a Finnish reporting entity when its non-resident counterparty would have a net payment obligation vis-à-vis the Finnish reporting entity if the contract were to be settled immediately (ie at the end of the month). Conversely, the market value is negative when the domestic reporting entity would have a net payment obligation vis-à-vis its non-resident counterparty. The values of assets underlying derivative instruments are not recorded under derivative contract values.

Validity of the definition

  • Valid until (31 December 2078)

Source organisation

  • IMF

Related concepts