Fair Value Hierarchy - Levels

Question 1

Level 1

Answer 1

Observable, quoted prices for identical assets or liablilities in active markets.

Question 2

Level 1 - examples

Answer 2

US government and agency securities, foreign government debt, listed equities and money market securities.

Question 3

Level 2

Answer 3

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices e.g, interest rates and yield curves.

Question 4

Level 2 - examples

Answer 4

Corporate bonds (investment grade, high yield), mortgage-backed securities, bank loans, loan commitments, less liquid listed equities, municipal bonds and certain OTC derivatives.

Question 5

Level 3

Answer 5

Unobservable inputs for the asset or liability. These should be based on the best information available. The company should utilize all reasonable available information, but need not incur excessive cost or effort to do so. However, it should not ignore information that can be obtained without undue cost and effort. As such, the reporting entity’s own data should be adjusted if information is reasonably available without undue cost and effort.

Question 6

Level 3 - examples

Answer 6

Distressed debt, private equity, exotic or non-standard derivatives.