Money market: Difference between revisions
imported>Doug Williamson (Replace Sterling with GBP.) |
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'''Example 1''' | <span style="color:#4B0082">'''Example 1'''</span> | ||
A 272 day GBP yield instrument quoted at 4% would pay periodic interest of: | A 272 day GBP yield instrument quoted at 4% would pay periodic interest of: | ||
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'''Example 2''' | <span style="color:#4B0082">'''Example 2'''</span> | ||
A 272 day USD yield instrument quoted at 4% pays periodic interest of: | A 272 day USD yield instrument quoted at 4% pays periodic interest of: | ||
Revision as of 15:34, 13 November 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 GBP 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.
