Mark To Market - MTM

AAA

DEFINITION of 'Mark To Market - MTM'

1. A measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of an institution's or company's current financial situation.

2. The accounting act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.

3. When the net asset value (NAV) of a mutual fund is valued based on the most current market valuation.

INVESTOPEDIA EXPLAINS 'Mark To Market - MTM'

1. Problems can arise when the market-based measurement does not accurately reflect the underlying asset's true value. This can occur when a company is forced to calculate the selling price of these assets or liabilities during unfavorable or volatile times, such as a financial crisis. For example, if the liquidity is low or investors are fearful, the current selling price of a bank's assets could be much lower than the actual value. The result would be a lowered shareholders' equity.

This issue was seen during the financial crisis of 2008/09 where many securities held on banks' balance sheets could not be valued efficiently as the markets had disappeared from them. In April of 2009, however, the Financial Accounting Standards Board (FASB) voted on and approved new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation, starting in the first quarter of 2009.

2. This is done most often in futures accounts to make sure that margin requirements are being met. If the current market value causes the margin account to fall below its required level, the trader will be faced with a margin call.

3. Mutual funds are marked to market on a daily basis at the market close so that investors have an idea of the fund's NAV.

VIDEO

RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Mark-To-Market Losses

    A loss generated through an accounting entry rather than the ...
  3. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  4. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  5. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
  6. Current Market Value - CMV

    The resale valuation attached to a security held long in an investor's ...
Related Articles
  1. Texas Ratio Rounds Up Bank Failures
    Personal Finance

    Texas Ratio Rounds Up Bank Failures

  2. Are Derivatives A Disaster Waiting To ...
    Options & Futures

    Are Derivatives A Disaster Waiting To ...

  3. Cleaning Up Dirty Surplus Items On The ...
    Markets

    Cleaning Up Dirty Surplus Items On The ...

  4. Equity Valuation In Good Times And Bad
    Bonds & Fixed Income

    Equity Valuation In Good Times And Bad

Hot Definitions
  1. Return On Sales - ROS

    A ratio widely used to evaluate a company's operational efficiency. ROS is also known as a firm's "operating profit margin". ...
  2. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  3. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  4. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  5. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  6. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
Trading Center