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Hi there,
It is understandable that financial liabilities held for trading are measured at FVTPL.
However, I am in a big question mark how financial liabilities are traded and the study text (Kaplan) doesn’t include this information apart from stating ‘it is sold’, and more disappointing, the illustration only states ‘issued a financial liability’ (not even stating the type so I can search online). I am always stuck (distracted) with this whenever I revisit this area.
Since a financial liability will result in an outflow (enforceable obligation to pay), what is the logic and reason that someone is willing to buy a debt (and type) and take the risks, and what is the reward of its ownership?
Tried to search online and came back with below answer but it is not specific (i.e. specific type and how) – not student-friendly type of answer.
https://www.openriskmanual.org/wiki/Held_For_Trading#:~:text=Financial%20liabilities%20held%20for%20trading%20include%3A%201%20derivative,has%20borrowed%20and%20does%20not%20yet%20own%29%3B%20%E6%9B%B4%E5%A4%9A%E9%A1%B9%E7%9B%AEMany thanks!
Not sure I can help, except that I have heard that it happens. People will buy and sell anything!
In SBR you would be told that the FV and that the instrument is held for trading – all you have to do is put the difference in the P&L. Detail on risk / reward is beyond our syllabus.
Could it be about the transfer of Liability for another to be obliged.
I think it is possible when someone finds it tough to secure money elsewhere.
So, it is like they are given loans by an intermediate party and so assume the obligation.
It makes a lot of sense, I think.
A could have a liability which he could waive by paying B who also needs a loan and thus B becoming liable.
Maybe due to A paying a lower amount and B securing the funds easily.Could it be?
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