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1. Fair Market Value
The term “fair market value” is typically used in the
economics and business/tax worlds. The term is generally
understood in its simplest form to mean the price at which
property would change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy and sell and
both having reasonable knowledge of relevant facts.
2. Market Value
The term “market value” is a term of art in the swaps
industry. This term is generally understood in its simplest form
to mean the present value of the anticipated cashflows,
calculated according to a series of generally accepted
conventions for using market data and using midmarket swap rates.
The market value of a swap is typically calculated the same way
for all swaps, without regard for the credit rating of the
counterparty and without incorporating an extra adjustment for
credit risk or future administrative costs.24
3. Fair Value
The term “fair value” is typically used in the accounting
world and is directed to the needs of financial statement
24 The common industry practice of valuing swaps does not
consider differences in the credit ratings of investment grade
counterparties.
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