Money market: Difference between revisions
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1. | 1. | ||
For GBP yield instruments: Actual / 365 days. | |||
So Simple periodic interest = Quoted nominal annual rate x (Actual days) / 365. | |||
'''Example 1''' | |||
A 272 day sterling yield instrument quoted at 4% would pay periodic interest of: | |||
= 4% x 272 / 365 | |||
= 2.9808% per 272 day period. | |||
= 4% x 272/360 | |||
2. | |||
For EUR, USD and most other currencies yield instruments: Actual / 360 days. | |||
So Simple periodic interest = Quoted nominal annual rate x [Actual days] / 360. | |||
'''Example 2''' | |||
A 272 day USD yield instrument quoted at 4% pays periodic interest of: | |||
= 4% x 272 / 360 | |||
= 3.0222% per 272 day period. | = 3.0222% per 272 day period. | ||
Revision as of 11:45, 18 March 2015
Money markets trade short-term financial instruments, generally with a life up to one year.
Securities are generally quoted on the basis of a simple nominal annual interest rate (or yield) or a simple nominal annual discount rate.
Important short term interest conventions are:
1.
For GBP yield instruments: Actual / 365 days.
So Simple periodic interest = Quoted nominal annual rate x (Actual days) / 365.
Example 1
A 272 day sterling yield instrument quoted at 4% would pay periodic interest of:
= 4% x 272 / 365
= 2.9808% per 272 day period.
2.
For EUR, USD and most other currencies yield instruments: Actual / 360 days.
So Simple periodic interest = Quoted nominal annual rate x [Actual days] / 360.
Example 2
A 272 day USD yield instrument quoted at 4% pays periodic interest of:
= 4% x 272 / 360
= 3.0222% per 272 day period.
