Final answer:
The Fair Value Hierarchy consists of Level 1, Level 2, and Level 3. These levels are used to categorize the inputs to valuation techniques used to measure fair value and range from market-based observations to unobservable inputs.
Step-by-step explanation:
The different levels of Fair Value Hierarchy are: Level 1, Level 2, and Level 3. Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability and reflect the entity's own assumptions about the assumptions market participants would use in pricing the asset or liability.
Understanding these levels is important when you determine how to compare monetary values, identify equal and unequal monetary values, order monetary values, and identify greater and lesser monetary amounts. This hierarchy aids in the assessment of financial assets and liabilities in a way that promotes comparability and reduces the use of subjective inputs. It is useful when dealing with investments and financial reporting.