What are Mark to Market Losses and Gains?
MTM-related losses and gains are the adjustments to the balance sheet’s assets or liabilities that occur as a result of applying the MTM method. The most prevalent cases of economic activity in the trading of financial instruments, among others, are securities such as equities, bonds, and derivatives.
1. Mark-to-Market Losses: This phenomenon, known as mark-to-market loss, is an instance where the market value of an asset, valued below book value (or the value at which it was recorded on the balance sheet), falls. This loss on the income statement is as per the fall in asset value and is a sign that the value of the asset is diminishing. To illustrate this, if a company owns stocks that have been receding since its acquisition, this would be reflected as a mark-to-market loss on its accounts.
2. Mark-to-Market Gains: From another side, the mark-to-market is in process if the market value of the asset increases and that value exceeds the book value. This means that the value of the asset grows, and it is called the gain in the cash flow index, which is recorded on the income statement. For illustration, maybe a company owning bonds that change in value to be higher when they are purchased will magnify the mark-to-market changes the bonds have.