Investor Glossary-mark to marketInvestor Glossary-mark to marketInvestor Glossary-mark to marketInvestor Glossary-mark to marketInsightful stock market charts - Click here
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Mark To Market

The HTML to link to this page

Mark to market is an accounting calculation tracking the current market value of an asset. Mark to market calculations are typically done daily. Mark to market is based on the current market value of the assets in question (i.e. commodity, security, derivatives, etc.). Mark to market reflects how much such assets would be sold for if they were put on the market today. Methodologies used in the mark to market calculation are classified on three different levels. Level 1: market prices for the asset are available and can be used in the mark to market calculation. Level 2: no market prices are available. Fair value needs to be modeled using observable prices of other assets. The output of this level 2 mark to market model is the mark to market value. In September 2008, the Securities and Exchange Commission (SEC) clarified that fair value in mark to market should not be based on a distress sale or forced liquidation price (i.e. FAS 157). Fair value in level 2 mark to market models should only be based on sale prices resulting from an orderly sale. Level 3: if price quotes or observable price inputs are not available, companies must estimate fair value. They often rely on proprietary assumptions as input to sophisticated mathematical mark to market models (i.e. black box). However, level 3 mark to market calculations can be controversial due to the lack of transparency. The advantage of mark to market is that it enables counterparties to track their risk exposure and take appropriate actions (i.e. margin calls, liquidation, etc.) to mitigate counterparty risk. For example, mark to market is used by brokerage firms to calculate margin requirements. Mark to market will help them determine whether or not a margin call is necessary. The Financial Accounting Standards Board (FASB) guides companies and financial institutions on the requirements that must be followed for proper mark to market reporting by issuing a series of Financial Accounting Standards Board statements known as FAS. Some FAS that are relevant to mark to market calculations are FAS 115, FAS 117, FAS 133, FAS 157, FAS 159. Mark to market is also known as MTM.

Rate this Mark to Market definition...

Learn about investing with the Investor Glossary Term of the Day

Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.

Popular Terms: liquidity ratio, annual return, wholly-owned subsidiary, debt service coverage, margin rate, 1031 exchange, covered put, inflation, EBITDA, irrevocable trust, deferred tax, open position, 1035 exchange, ex-dividend date, stock split, labor relations, cancelled check, required rate of return, stock market close, limit order, real GDP, APR, in escrow, quality assurance, FTSE, LIBOR, per diem, FICO score, current ratio, Zero Cost Collar, average price per share, class C shares, deferred revenue, VIX, retained earnings, implied volatility, ex-dividend, dividends payable, option premium, balance sheet, command economy, minority interest, Key Rate Duration, diluted share, phantom income, risk management, 144a, reverse mortgage, 401a

Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use