Level 2 Assets

Level 2 assets are financial instruments that are not as liquid as Level 1 assets. Level 2 assets are also known as illiquid assets. Level 2 assets are typically held by banks and other financial institutions.

Level 2 assets are not as liquid as Level 1 assets because they cannot be easily converted into cash. This is because Level 2 assets are typically longer-term investments. Level 2 assets also have a higher risk of default than Level 1 assets.

The level of liquidity of an asset is determined by its marketability. Marketability is the ability of an asset to be sold quickly and easily at a fair price. Level 1 assets are the most liquid assets because they can be easily sold on the market. Level 2 assets are less liquid because they cannot be easily sold on the market.

Level 2 assets are typically held by banks and other financial institutions because they are used to generate income. Banks and other financial institutions earn interest on Level 2 assets. Level 2 assets are also used to hedge against risk. Banks and other financial institutions use Level 2 assets to protect themselves against losses in the event of a market downturn.

The level of risk of an asset is determined by its credit quality. Credit quality is the ability of an issuer to repay its debt. Level 1 assets have the highest credit quality because they are issued by the most creditworthy issuers. Level 2 assets have a lower credit quality because they are issued by less creditworthy issuers.

Level 2 assets are typically held by banks and other financial institutions because they are used to generate income and to hedge against risk. Level 2 assets are not as liquid as Level 1 assets and they have a higher risk of default.