Level 2 Assets

AAA

DEFINITION of 'Level 2 Assets'

Assets 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.

INVESTOPEDIA EXPLAINS '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. FASB 157

    A Financial Accounting Standards Board (FASB) Statement that ...
  2. Financial Accounting Standards ...

    A seven-member independent board consisting of accounting professionals ...
  3. Interest Rate Swap

    An agreement between two parties (known as counterparties) where ...
  4. Mark To Market - MTM

    1. A measure of the fair value of accounts that can change over ...
  5. Level 1 Assets

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

    Assets whose fair value cannot be determined by using observable ...
Related Articles
  1. An Introduction To Swaps
    Options & Futures

    An Introduction To Swaps

  2. Who Is To Blame For The Subprime Crisis?
    Mutual Funds & ETFs

    Who Is To Blame For The Subprime Crisis?

  3. How do companies benefit from interest ...
    Forex

    How do companies benefit from interest ...

  4. What is happening during a risk repricing?
    Investing

    What is happening during a risk repricing?

Hot Definitions
  1. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  2. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  5. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  6. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
Trading Center