Mark-to-market
Also called: MTM · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
Mark-to-market (MTM) means valuing assets at their current market price instead of at the price paid for them. It shows the true present worth of a portfolio. For banks, it matters most for bond holdings. When yields rise, bond prices fall, and banks must record MTM losses on their investments. In futures trading, contracts are also settled daily through MTM.
Example
RBI's investment norms from April 2024 put bank investments into three categories: HTM (held to maturity), AFS (available for sale) and FVTPL (fair value through profit and loss). A global warning came from Silicon Valley Bank in the US, which collapsed in March 2023 after large unrealised losses on its bonds.
Don't confuse with
- Historical cost valuation: this values an asset at the price originally paid, so it hides the effect of later price changes. Mark-to-market shows those changes at once.
Related concepts
- Bonds
- Coupon rate
- Present value
- Bond price and interest rate inverse relation
- Capital gain
- Zero-coupon bond
- Floating rate bond
- Yield curve
- Inverted yield curve
- Credit rating