Definition of Level 3 Assets
What are level 3 assets? What is the definition of level 3 assets?
Level 3 assets are financial assets and liabilities that are very illiquid and hard to value.
Many publicly traded corporations have many billions of dollars of level 3 assets on their balance sheets.
Level 1 assets can easily be valued and are very liquid. For instance, if a company owns a significant amount of US treasuries, then these are level 1 assets because: a) they can easily be sold and b) they can easily be valued
Level 3 assets, on the other hand, are illiquid and extremely hard to value.
Example of Level 3 assets:
-certain private investments
and many more..
Level 3 assets trade so infrequently that there is no reliable market price for them, so an accurate market value can not be calculated. Companies can try to determine values through pricing models, but these can not be counted on as being accurate.
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