On May 17, 2007, the Bank of Montreal (BMO) announced that it would record mark-to-market trading

losses of $680 million from its natural gas related positions in the first 2 quarters of the year.

Mark-to-market trading gains and losses arise from using fair value accounting for recording hedging

transactions. This $680 million was a revision of an original expected loss of between $350 million and

$450 million announced by BMO a few weeks earlier on April 27, 2007. BMO sells natural gas futures to

provide its clients with hedging services. On April 27, 2007, BMO distributed a press release providing

answers to some frequently asked questions (FAQs).

In its press release of April 27, 2007, BMO stated that the expected range of trading losses is very wide

(ranging from $350 million to $450 million) because "the valuation of commodity positions is very

difficult, particularly in an illiquid market."

BMO further stated that it had to take such a large unmatched position because "energy is a key sector for

the bank where we provide hedging services to our clients. In order to do this we are market makers in this

segment. The large position was a result of the active market making in the period during which there were

fewer client transactions as prices declined and a significant reduction in volatility and liquidity."

Question: Indicate whether you agree or disagree with BMO's statement that the expected range of losses is so

large because "the valuation of commodity positions is very difficult, particularly in an illiquid

market." Support your discussion with reference to mark-to-market accounting.