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. Financial Accounting Standards ...

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

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

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

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

    Assets whose fair value cannot be determined by using observable ...
  6. FASB 157

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

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center