Level 2 Assets

What are 'Level 2 Assets'

Level 2 assets are ssets that do not have regular market pricing, but whose fair value can be readily determined based on other data values or market prices. Sometimes called "mark to model" assets, Level 2 asset values can be closely approximated using simple models and extrapolation methods using known, observable prices as parameters. Part of an overall requirement of publicly-traded companies is that they are required to report to investors the makeup of their assets based on certainty of fair value calculations.

BREAKING DOWN 'Level 2 Assets'

An example of a Level 2 asset is an interest rate swap, where the asset value can be determined based on the observed values for underlying interest rates and market-determined risk premiums.

The classification system including Level 1, Level 2 and Level 3 assets came about as a result of Financial Accounting Standards Board (FASB) Statement 157, which requires public companies to allocate all assets based on the reliability of fair market values. Level 2 assets are the middle classification based on how reliably their fair market values can be calculated. Level 1 assets are the easiest (such as listed stocks, bonds), while Level 3 assets can only be valued based on internal models or "guesstimates" and have no observable market prices.

RELATED TERMS
  1. Level 1 Assets

    Assets that have readily observable prices, and therefore a reliable ...
  2. Level 3 Assets

    Assets whose fair value cannot be determined by using observable ...
  3. Asset Valuation

    A method of assessing the worth of a company, real property, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or ...
  5. FASB 157

    A Financial Accounting Standards Board (FASB) Statement that ...
  6. Relative Value

    A method of determining an asset's value that takes into account ...
Related Articles
  1. Personal Finance

    Assessing Bank Assets: Are Your Savings Safe?

    Learn how to determine if your assets are safe or if your bank has spread itself too thin.
  2. Managing Wealth

    Investment Value Vs. Fair Market Value: How They Differ

    Learn about the differences between an asset's investment value and its fair market value, including why many think fair market value is unrealistic.
  3. Investing

    What's Fair Value?

    Fair value has three different meanings depending on the context.
  4. Investing

    The Difference Between Book and Market Value

    Book value is the price paid for an asset. It never changes as long as the asset is owned. Market value is the current price at which the asset can sell.
  5. Managing Wealth

    What's an Asset?

    An asset is a resource with economic value.
  6. Managing Wealth

    What is a Real Asset?

    A real asset is a physical asset that has value.
  7. Markets

    Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment.
  8. Managing Wealth

    Asset Manager Ethics: Valuation Is A Tricky Business

    Asset managers must accurately represent all of a clients assets in the client portfolio. This can be tricky for unique and hard-to-value assets.
  9. Investing

    Mark-To-Market: Tool Or Trouble?

    Mark-to-market accounting can be a valuable practice, but all bets are off when the market fluctuates wildly.
  10. Markets

    Explaining Fair Market Value

    Fair market value is the price at which a buyer and seller are willing to exchange a good.
RELATED FAQS
  1. What is the difference between carrying value and fair value?

    Learn about the carrying value and fair value of assets and liabilities, what the carrying and fair value measure and the ... Read Answer >>
  2. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
  3. When is market to market accounting performed?

    Discover when mark to market accounting is performed, to what assets it is applied, and how frequently it must be applied ... Read Answer >>
  4. How do you account for changes in the market value of various fixed assets?

    Understand how to account for changes in the fair market value of a company's fixed assets. Learn what accounting methods ... Read Answer >>
  5. Why is market to market (MTM) accounting considered controversial?

    Understand why mark to market accounting has been a major point of controversy because it requires all assets to be valued ... Read Answer >>
  6. What can cause an asset to trade below its market value?

    Understand how market price can differ from actual fair value, and the reasons that an investment asset might trade below ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center