CERTYNEX IFRS ACADEMY

To value a debt security, Salvane uses a model whose inputs are: (1) an interest rate published daily by dealers in their market and (2) a margin set internally, with no reference to market data. How should the entity treat these two inputs?

It regards both as observable, since they feed a market-based model.

The rate is observable, the margin unobservable, and the technique minimises the weight of the latter.

It regards both as unobservable, since they go through an internal model.

It treats the margin as observable, because it is specific to the entity, and the rate as unobservable.