NOTES TO FINANCIAL STATEMENTSCITY OF EUSTIS, FLORIDA(Continued)Note 3 - Cash, Cash Equivalents, and Investments (Continued)Fair Value of InvestmentsThe City measures and records its investments using fair value measurement guidelinesestablished by generally accepted accounting principles. These guidelines recognize athree-tiered fair value hierarchy, as follows:Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identicalassets or liabilities in active markets that the Plan has the ability to access.As a rule, any asset that has a daily closing price and is actively traded will be classifiedas a Level 1 input.Level 2: Inputs are inputs (other than quoted prices included within Level 1) that areobservable for the asset or liability, either directly or indirectly. Inputs to the valuationthe full term of the asset or liability.As a rule, if an asset or liability does not fall into the requirements of a Level I or Level3 input, it would default to Level 2. With Level 2 inputs, there is usually data that canbe easily obtained to support the valuation; even though it is not as easily obtained, asa Level 1 input would be.Level 3: Inputs to the valuation methodology are unobservable and significant to thefair value measurement.As rule, Level 3 inputs are those that are difficult to obtain on a regular basis and requireverification from an outside party, such as an auditor or an appraisal, to validate thevaluation.Debt and equity securities categorized as Level 1 are valued based on prices quotedin active markets for those securities. Debt securities categorized as Level 2 are valuedusing a matrix yield curve that values securities based on their relationship tobenchmark quoted prices and credit spreads. Equities categorized as a Level 2 arevalued using a multifactor model, which includes price, sector indices, and currencyfluctuations.Debt and equity securities classified in Level 1 are valued using prices quoted in activemarkets for those securities. Currently, the City does not have any debt obligationsclassified in Level 3.52
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