Overdraft and SOFR: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Add overdraft example.)
 
imported>Doug Williamson
(Add link.)
 
Line 1: Line 1:
1. ''Facility''.
''US interest rate benchmarks''.


An overdraft facility is a line of credit which is applied to a current account and may be drawn on demand.
SOFR is the Secured Overnight Financing Rate.  


It is also known as a demand loan, as it is repayable to the bank on demand by the bank.
This is a broad treasuries repo financing rate, recommended as a benchmark by the Alternative Reverence Rates Committee (ARRC) of the Federal Reserve.


For this reason, it is risky to use overdrafts for core financing needs.
It is published by the New York Fed at approximately 8am local time.  




2. ''Liabilities.''
3 April 2018 was the first time SOFR was published. It is calculated based on actual transactions and is a volume-weighted median.  


The amount by which an account is overdrawn.
In the first three months of the publication of SOFR the underlying overnight lending transaction volume was on average approximately USD 800 billion.  


Also known as an overdraft balance.


LIBOR, which is currently used as the main benchmark rate, is expected to discontinue by 2021 in light of multiple irregularities and lack of sustainability in the absence of an active underlying market.


:<span style="color:#4B0082">'''''Example: Overdraft'''''</span>
SOFR is the new benchmark USD rate (alternatively known as risk-free rate) and ARRC is working with the industry to transition to SOFR from LIBOR.   


:We have an overdraft of £50k at the start of April. In other words we owe £50k to the bank.


:We need to put more money into our account.
==See also==
*[[Alternative Reference Rates Committee]]
*[[Federal Reserve]]
*[[IBOR]]
*[[LIBOR]]
*[[Reference rate]]
*[[Risk-free rates]]
*[[Repo]]
*[[SOFR term rate]]
*[[SONIA]]
*[[Treasury]]


:Now we deposit £60k into the account during the month of April.


:This repays our overdraft, with some cash left over.
===Other links===


:At the end of April, our bank account now has a positive amount in it, of:
[[Media:Slaughter and May interest rate benchmarks.pdf| 2021: A Benchmark Odyssey, Practical Guidance for Treasurers on interest rate benchmarks, Slaughter and May]]


::-50 + 60 = 10k
[[Category:Corporate_financial_management]]
 
:We now have £10k cash in our bank account at the end of April.
 
:The situation of a positive amount in the bank is known as cash at bank (or being 'in credit').
 
 
 
== See also ==
* [[Balance]]
* [[Bridge financing]]
* [[Concentrate]]
* [[Facility]]
* [[Liabilities]]
* [[Overdrawn]]
* [[Revolving credit facility]]
* [[Round tripping]]
 
[[Category:Liquidity_management]]

Revision as of 08:04, 12 September 2021

US interest rate benchmarks.

SOFR is the Secured Overnight Financing Rate.

This is a broad treasuries repo financing rate, recommended as a benchmark by the Alternative Reverence Rates Committee (ARRC) of the Federal Reserve.

It is published by the New York Fed at approximately 8am local time.


3 April 2018 was the first time SOFR was published. It is calculated based on actual transactions and is a volume-weighted median.

In the first three months of the publication of SOFR the underlying overnight lending transaction volume was on average approximately USD 800 billion.


LIBOR, which is currently used as the main benchmark rate, is expected to discontinue by 2021 in light of multiple irregularities and lack of sustainability in the absence of an active underlying market.

SOFR is the new benchmark USD rate (alternatively known as risk-free rate) and ARRC is working with the industry to transition to SOFR from LIBOR.


See also


Other links

2021: A Benchmark Odyssey, Practical Guidance for Treasurers on interest rate benchmarks, Slaughter and May

Retrieved from ‘https://wiki.treasurers.org/w/index.php?title=Overdraft&oldid=42666’