Friday, July 19, 2024

Mark-to-Market

In this article, We learn about “Mark-to-Market “.Let’s Go!

Mark-to-Market Mark-to-Market Accounting, also known as “mark-to-market” accounting, is the process of obtaining the market value of assets and liabilities through daily revaluations rather than quoting them to “book value.”

This accounting method is used to evaluate the true value of assets and liabilities because it shows the current market price of assets and liabilities and more truly reflects the company’s financial position.

Mark-to-Market Accounting was originally introduced to assess the value of futures contracts and is now widely used in over-the-counter derivatives (OTC) markets, including spot transactions and forward contract markets.

It is considered an accurate method based on market conditions at any given time, but it has also been criticized because during turbulent times it provides results that do not accurately portray the true value of an asset or liability.

For example, if investor confidence in a market disappears, the value of the asset may fall significantly depending on current market conditions.

Additionally, it has been linked to financial fraud and scandal.

Mark-to-Market Example

An investor purchases 100 shares of a company’s stock at $10 per share. The book value of their investment is $1,000.

On the second trading day after the purchase, the company’s stock price fell 10%.

So the mark-to-market value is $900. The book value remains $1,000.

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