How to ‘Mark-to-Market’ When There Is No Market

In: Business and Management

Submitted By dodocyorin
Words 6287
Pages 26
Original Article

How to ‘mark-to-market’ when there is no market
Received (in revised form): 12th December 2010

Samuel Francis is an attorney and certified public accountant experienced in corporate, litigation, audit and tax matters focusing his practice on financial services and investment management. He holds a BS in accounting from the City University of New York, Brooklyn College and a JD from Fordham University School of Law. He is the author of the 2009 award-winning article ‘Meet Two-Face: The Dualistic Rule 10b-5 and the Quandary of Offsetting Losses by Gains’. Fordham Law Review 77(6): 3045–3094. Correspondence: Samuel Francis, 321 Roselle Avenue, Cedarhurst, NY 11516, USA E-mail: samfrancis@optonline.net

ABSTRACT At the center of the global financial crisis of 2007–2008 was the collapse of American International Group, brought on by extensive unhedged positions in derivatives, such as credit default swaps, and possibly exacerbated by mark-to-market accounting rules. Even though these rules generally produce the most realistic valuations of derivatives, a heated debate broke out over their application in a dislocated market. The foremost concern was that forcing financial institutions to mark down assets to their current market prices actually causes further declines. Regulators largely dismissed such concerns, but acknowledged that the existing standards could use additional clarification and modification. Many scholarly studies have since concurred that the rules should not be replaced, but suggest that additional measures should be taken to avoid their potential procyclical effects. Journal of Derivatives & Hedge Funds (2011) 17, 122–132. doi:10.1057/jdhf.2011.6; published online 9 June 2011 Keywords: mark-to-market; fair value accounting; credit default swaps; derivatives; AIG

INTRODUCTION
And it came to pass at the end of two full years,…...

Similar Documents

How the Eu Is Changing the European Market

...BUS 321 Marketing Page 1 of 9 Mid-term Addition Group Assignment April 17, 2007 How the EU is Changing the European Market By Page 2 of 9 Q.1.) Relate this story to the concept of SWOT analysis. Can you find any examples of leverage, problems, constraints, and vulnerabilities? Government officials envision the EU as a single market, an area without internal frontiers in which the free movement of goods, person, services, and capital is assured. This is a tall order in the current European Market as huge benefits are plentiful for some and lacking for others. The countries that are members of the EU house an regulatory environment with which local and multinational firms operate. What is the cost of the current situation for the European Union? The EU is one of the world’s biggest investors in promoting economic and social growth to the European markets. The European Union considers Foreign Direct Investment (FDI) as one of the key solutions to promoting development, economic and social growth to the European Markets. It is within the scope of framework that the EU follows a pro-development approach of long-term investments that will generate stable employment and growth for the European marketplace. The European banking industry has been slow in converting into a modern means of investment opportunities and lacks standardization of banking rules and regulations...

Words: 1859 - Pages: 8

How the Eu Is Changing the European Market

...vulnerabilities? Government officials envision the EU as a single market, an area without internal frontiers in which the free movement of goods, person, services, and capital is assured. This is a tall order in the current European Market as huge benefits are plentiful for some and lacking for others. The countries that are members of the EU house an regulatory environment with which local and multinational firms operate. What is the cost of the current situation for the European Union? The EU is one of the world’s biggest investors in promoting economic and social growth to the European markets. The European Union considers Foreign Direct Investment (FDI) as one of the key solutions to promoting development, economic and social growth to the European Markets. It is within the scope of framework that the EU follows a pro-development approach of long-term investments that will generate stable employment and growth for the European marketplace. The European banking industry has been slow in converting into a modern means of investment opportunities and lacks standardization of banking rules and regulations such as Germany. The German banking system slows the economy by poor management decisions regulated by adverse government policies and a unwillingness to modernize the way it promotes business within its borders. Having a standardized banking system in Europe would promote growth and strengthen the market and the image of Germany. This could be......

Words: 277 - Pages: 2

Explain How to Identify the Target Market

...Shannon Molyneux Unit 36 P2 - Explain how to identify the target market My Idea I am creating my own business, I have decided to open my own clothes store often known as a ‘boutique’ my store will be known as ‘dizzy boutique’ my business will be located in the small village Burscough. I have decided to locate my business in Burscough because there are none like this in the area. I have decided to do this business as fashion is my interest. Brief I need to identify the level of demand for my business and who it is from. In order to look at my potential customers and the way they buy I will have to go into an existing clothes store and see the way they act and what they actually buy. I will create an observation checklist which will show gender, rough age, whether they buy anything and what they buy. I would do this for several hours until I have details of 200 people entering the shop.There are lot of similar stores like this I could go and visit especially in the Skelmersdale concourse. Also as there are other business which are a lot like mine but are online, I would look at them and see how they go about things I wouldn’t help me in many ways but I could get a better idea of the stock and the price they go for. To help identify my competition, I need to visit the local town centre to locate any similar businesses. Another way of doing this is to go online and look at the local areas. Research proposal. For my primary methods I have decided I will go to other......

Words: 566 - Pages: 3

How Market-Driven Is Your Company?

...How market-driven is your company? A significant change has taken place in the domestic and international markets environments due to the increasing pace of economic commercialization. Therefore, it is imperative that company or organizations must put all effort in their products design and quality to satisfy the customer because in today’s global marketplace the client has turned out to be the primary role within current business correspondence. Technological advancement globalization has made the marketplace very difficult, and companies are in search for a strategic approach which is advanced and healthier not only win customers but be inventive and competitive in the marketplace. These initiatives are not just to stay competitive in business but also to make sure that specific choices of strategies are implemented to preserve as well as improve the current business(Slack & Lewis,2011.pp.36-37). For companies to realize this and protect their business and with the intention of staying on top of the competitive market they must first of analyze the internal, as well as the external environment of their business and provide customers with delights products which are acceptable, products which are customer-centric and market driven(Slack & Lewis,2011.pp.56,Dr. Lantos, 2009). As a result of all this, organizations as well as businesses have adopted various strategic initiatives which would allow them to develop and determine the future needs of their consumers to establish...

Words: 928 - Pages: 4

How Financial Markets Work

...Explain how financial markets work in the United States A financial market is where people can go to buy and sell securities and commodities. Securities are stocks and bonds, while commodities are items like crude oil, coffee beans, and precious metals. The markets are open and public. This allows for the market to set prices on everything traded based on investor trading and economic factors in a regulated fashion. A stock is a piece of ownership in a company. The value of that stock can go up or down based on the company’s performance. These companies that sell stock are public corporations, and they sell the shares of ownership to raise money for different reasons like to expand their business or invest in new technology. Bonds are more like a loan that selling shares of ownership. A bond is sold to borrow money from an investor. The bond will have an interest rate and date of maturity. There is an expected yield at maturity which is the bond price plus interest. Commodities are traded in an open market also. These natural resources are traded on the market so that the companies can secure these resources for future use, at a set price today. These commodities can be fluctuate in price daily and therefore this offers less risk by securing a price before they get the commodity. Identify processes the organization uses to comply with SEC regulations. Starbucks has different processes that it uses to stay in compliance with the SEC regulations.......

Words: 405 - Pages: 2

Mark to Market

...Discussion of Mark-to-Market standards for Investment securities Relevance vs. Reliability – “Going back to the basics” In a recent Wall Street Journal article titled “A Scion Drives Toyota Back to Basics”, Toyota’s incoming president, Akio Toyoda, said that the company his grandfather founded 72 years ago has become too fancy for its own good. Mr. Toyoda maintains kakushin, or “revolutionary change”, spawns technological innovation that comes at a cost. His conclusion is that these increased production costs have led Toyota astray from its core ideas of thrift and efficiency. Consequently, Mr. Toyoda has called for a return to these core beliefs by going back to the basics. The basics of accounting are relevance and reliability. In a perfect world, asset valuation would always be equally relevant and reliable. The real world, however, requires accountants to choose between the two. Traditionally conservatism, which favors reliability over relevance, has won out. That is until recently when some kakushin hungry accountants decided this is the right time for a “revolutionary change” in financial reporting standards. Newly adopted FMV, or mark-to-market, requirements are evidence of this fundamental shift. Unfortunately, this departure from reliability to relevance could not have come at a worse time. The current credit crisis has brought these two principles to a dangerous crossroads where, like Aiko Toyoda, it is now the responsibility of the SEC, AICPA, and......

Words: 711 - Pages: 3

How to Market with Businesses

... How To Market Facebook With Businesses Harry Pruitt Benedictine University Author Note Harry Pruitt, Student in Business, Benedictine University. Abstract We normally judge a book by its cover, so visuals can be very important. Online marketing through Facebook is no different. Most of our influences are through social media and more people are turning to social media to gain more business for their companies. Facebook has been successful in helping with business marketing, spending as little or as much as you want or need to. Facebook is the social platform for web based businesses near and far. Even though Facebook has its different problems, marketing within Facebook has been very successful thus far .Using different strategies and building creative profiles makes for a better business outcome. Bigger dreams become bigger goals, by staying on the right path you accomplish you objective and achieve your marketing goals as a business owner. How To Market Facebook With Businesses Facebook is an online social networking service. Facebook was founded in February 2004, by Mark Zuckerberg and some of his friends at Harvard University. The website was first used for Harvard University students only, but then it gradually excelled to various universities, high schools, and even 13 year old children. Before entering Facebook, the user must register and create a personal profile. The use of this social network is to add other users as friends, exchange messages, and receive......

Words: 2954 - Pages: 12

How to Select a Niche Market

...How to Select a Niche Market Brought to you by Chris Cobb Automated Income Stream Ltd © Automated Income Stream Ltd. All rights reserved. No part of this publication may be reproduced, sold, stored in a retrieval system, or in any form or by any means, without the prior permission in writing of the publisher. This is for your own personal use. 1 For legal reasons we are obliged to state the following: Disclaimer: To the fullest extent permitted by law, Automated Income Stream Ltd are providing this written material, its subsidiary elements and its contents on an ‘as is’ basis and make no (and expressly disclaim all) representations or warranties of any kind with respect to this written material or its contents, including, without limitation, advice and recommendations, warranties or merchantability, and fitness for a particular purpose. The information is given for entertainment purposes only. In addition, Automated Income Stream Ltd does not represent or warrant that the information accessible via this written material is accurate, complete or current. To the fullest extent permitted by law, Automated Income Stream Ltd or any of its affiliates, partners, directors, employees or other representatives will not be liable for damages arising out of, or in connection to, the use of this written material. This is a comprehensive limitation of liability that applies to all damages of any kind, including (without limitation) compensatory, direct, indirect or consequential...

Words: 5274 - Pages: 22

Hbr How to Win in Emerging Markets

...November 2012   Subject matter:   How to win in emerging markets: Lessons from Japan written by Shigeki Ichii, Susumu Hattori and David Michael was published in the Harvard Business Review of May 2012. The article is about the fact that big firms like Sony, Toyota and Honda were big exporters to developed countries the last decades. But growth in the developed markets has slowed down in the 21st century. The growth at an average annual year rate is much higher in developing countries like Brazil and India than in developed countries. To prosper now, Japanese companies like Sony and Toyota must win in developing countries, something they’re now failing to do.    Most of the Japanese companies moved up from the bottom in the developed countries in contrast to the developing countries where they entered at the top of the consumer pyramid. When they where settled they moved into the middle and low-end segments. In these segments low prices and economies of scale are specific characteristics. The result can be that these Japanese companies fail in the emerging markets of these days. So the Japanese companies have to rethink their strategies and overcome four structural challenges. There are four structural challenges to get a better place in the emerging markets. The first one is distaste for the middle and low-end segments. Most of the companies that are entering emerging markets are also find their spots in these segments of the market. However, the last years Japanese......

Words: 709 - Pages: 3

Mark to Market

...Mark-to-Market: The Fall of Enron John Smith State University Mark-to-Market: The Fall of Enron Enron was the face of business in the 1990’s. Rising to meteoric heights never seen before in the business world, to having just as epic of a fall. The core reason behind this meteoric rise and epic fall? Mark-to-Market (M2M) accounting principles. This paper will be presented in four sections. The first section defines and explains the term of M2M. The second section discusses the way M2M was used in the business environment before and after the Enron collapse. The third section focuses on the views of the current business environment on using M2M, both for and against its use. In the fourth and final section, the author gives their opinion on the practice of M2M, and if it is still a viable accounting principle. Mark-to-Market Defined In the private sector all accounting principles and standards are gathered together and organized by the Financial Accounting Standards Board (FASB). They are then put into what is called the FASB Codification. The FASB Codification (2015) defines M2M as a valuation method that uses current market prices and other useful information that is supplied by market exchanges between similar items such as assets, liabilities or a similar business (“FASB Codification,” 2015). Basically what this accounting principle does is use the fair value of the current market price to determine what an asset or liability is worth. Using......

Words: 1762 - Pages: 8

How Walmart Entered the International Market

...Wal-Mart entered the Mexican market in 1991 and hasn’t looked back. Using a form of globalization called glocalization, Wal-Mart achieved tremendous success in Mexico. The perception of Wal-Mart globally is less than stellar because of what has been coined as Wal-Martization. Some have also called Wal-Mart a ‘Cathedral of Consumption.’ But Wal-Mart learned the hard way how to become successful in the global marketplace. It didn’t just happen overnight. By utilizing five glocalization strategies, Wal-Mart became the largest private employer in Mexico. Wal-Martization is a philosophy where faster, better and cheaper are words used to describe their process. More words that define Wal-Martization are bigger, global and standardized. While Wal-Mart is known for its everyday low pricing, it also has a few negative connotations associated with it. They include its anti-union poilicies, downward pressure on manufacturers, low salaries for employees and its merciless expansion practices. When Wal-Mart comes to town local shop owners panic because Wal-Mart can reduce prices as much as it wants and the local businesses can’t compete with that. Sam Walton opened the first Wal-Mart in Bentonville, Arkansas, in 1962. By 1979 Wal-Mart was making $1 billion in annual sales. By 1993 it was making $1 billion in weekly sales. And by 2001, Wal-Mart began making $1 billion in sales each day. According to its official website, corporate.walmart.com, Wal-Mart is currently in 27......

Words: 2036 - Pages: 9

Pricing When Entering a New Market in B2B Environment

...TAMPERE UNIVERSITY OF TECHNOLOGY Tampere School of Business and Technology ONUR TAMUR PRICING WHEN ENTERING A NEW MARKET IN B2B ENVIROMENT: Understanding the B2B Dynamics Seminar Report ii ABSTRACT With the rise of globalization and saturated local markets, many companies started chasing international opportunities that would help them expand to new countries and increase their brand recognition around the globe. One of the challenges that companies face while entering a new market is defining the right price and pricing of their offering to be competitive and successful in the market. In B2B area, there are not any wide research on pricing issues that companies face in the markets that they are planning to enter and the effects of business relations on pricing. This paper focuses on market entry strategies and market entry modes, the fundamentals of pricing in a new market and the differences of B2B and B2C pricing. The study covers market entry modes and its impact on profitability, value creation in B2B area and the key aspects of pricing behaviour while entering a new market. This study in general provides a framework for implementing the right pricing strategy while entering new markets and defining the right pricing behaviour in B2B environment. This framework enables companies to understand the dynamics of B2B environment covering buyer-supplier and distributors relations and providing pricing models for companies to be a competitive player. Tamur,......

Words: 5613 - Pages: 23

Cultural Challenges When Entering the Global Market

...Cultural Challenges When Entering the Global Market Prepared by: Dennis M. Reilly, Regent University, LDSL 724, Cultures & Values I. Executive Summary Globalization can be defined as the inevitable integration of markets, nation-states, technologies and people in a way that is enabling individuals, organizations and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before. Culture has become a highly significant factor in determining the success in today's international business environment. In particular, organizations entering the foreign markets either by expansion or mergers and acquisitions (M&A’s) are known to suffer at a high failure rate due to not understanding and preparing for cultural differences. Studies suggest that failure is due to different and often controversial relationships between cultural differences, integration and performance. The purpose of this white paper is to examine the cultural concerns when American corporations/organizations enter foreign markets and the impact cultural understanding or the lack thereof has on their success or failure. II. Culture “Culture is not only all around us but within us as well”. Each individual within an organization comes with a unique background and culture. Culture can be defined as the blending of values, politics, beliefs, behaviors, customs and attitudes that distinguishes one society from another. Since culture is a learned behavior that......

Words: 3281 - Pages: 14

How the Stock Market Works

...The stock market is where companies are able to sell stocks/shares or derivatives on any agreeable price. There are many stock markets around the world that operate in different countries, and the biggest two are in New York City, U.S.A, which are the NYSE Euronext and NASDAQ. So in this course we were requested to participate in a stock exchange simulation, in which we are to exchange stocks virtually based on real statistics. In this game we were to experiment with buying and selling stocks and try out different strategies, and determine which strategy generated the most profits. The main goal was to start out with $10,000 of virtual money and buy and sell stocks in order to make more profit and increase the final amount. The first strategy that I decided to use was to buy in a rising industry, and that was the technological industry, so I bought 4 stocks of that industry in this week. I bought shares from Netflix, Netflix is a company that sells membership, which allows the member unlimited movies from a limited selection. And since they out won Blockbuster (movie rentals) and declared to licensing Disney movies, I assumed that the stock would increase. I also bought News Corporation stocks, and the reason being is that News Corporation owns fox and fox was realising a couple of new shows including the hit “American Idol”, this means their commercials will increase thus producing more money. The third stock that was bought for the week was R.I.M (Research in Motion). And...

Words: 1934 - Pages: 8

How Market Crowd

...direction. This is called the bandwagon effect. Here’s how a bandwagon works: A fresh piece of news comes out, a majority of traders interpret it as favorable to a security, and buying overwhelms selling so that the price rises. You profit by going with the flow. Then when everyone is jumping off the bandwagon, you jump, too. As market participants get excited about a security, they become increasingly bullish and either buy for the first time or add to positions, a phase namedenamed accumulation. When traders become disillusioned about the prospect of their security price rising, they sell, in a phase named distribution. To buy 100 shares of a stock is to enter a position. To buy another 100 shares for a total of 200 is toadd to your position. If you have 500 shares and sell half, you would be reducing your position. To sell all the shares you own is to square your position. When you’re square (also called flat), you have no position in the security. All your money is in cash. You’re neutral. After traders have been accumulating the security on rising prices, eventually the price goes too far.Too far is a relative term and can be defined in any number of equally valid ways, but basically it means any price extreme that’s wildly abnormal, statistically speaking. When a price has reached or surpassed a normal limit, it’s at an extreme. In an upmove, everyone who wanted to buy has already bought. The market is called overbought, a term specific to......

Words: 1878 - Pages: 8