Capital Requirements Regulation and Discount basis: Difference between pages

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''Bank regulation''
This term can refer either to the cash flows of an instrument (Discount instruments) or to its basis of market quotation (Discount rate).


The European Union's banking capital requirements Regulation 575/2013, issued in conjunction with its Capital Requirements Directive 2013/36/EU.


'''Example'''
An instrument is quoted - on a <u>discount basis</u>, one period before its maturity - at a discount of 10% per period.
This means that it is currently trading at a price of 100% LESS 10% = 90% of its terminal value.
(The periodic ''yield'' on this instrument is 10% / 90% = 11.11%.  So if the same instrument had been quoted on a <u>yield basis</u>, then the quoted yield per period = 11.11%.)
The relationship between the periodic discount rate (d) and the periodic yield (r) is:
r = d / ( 1 - d )
So in this case:
r = 0.10 / ( 1 - 0.10 = 0.90 )
= 11.11%




== See also ==
== See also ==
* [[Basel III]]
* [[Discount instruments]]
* [[Capital Requirements Directive]]
* [[Discount rate]]
* [[CRD IV]]
* [[Sterling commercial paper]]
* [[European Union]]
* [[US commercial paper]]
* [[Own funds]]
* [[Yield basis]]
* [[PRA]]
* [[Regulation]]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Corporate_finance]]
[[Category:Investment]]
[[Category:Long_term_funding]]

Revision as of 13:11, 15 March 2015

This term can refer either to the cash flows of an instrument (Discount instruments) or to its basis of market quotation (Discount rate).


Example

An instrument is quoted - on a discount basis, one period before its maturity - at a discount of 10% per period.

This means that it is currently trading at a price of 100% LESS 10% = 90% of its terminal value.

(The periodic yield on this instrument is 10% / 90% = 11.11%. So if the same instrument had been quoted on a yield basis, then the quoted yield per period = 11.11%.)


The relationship between the periodic discount rate (d) and the periodic yield (r) is:

r = d / ( 1 - d )

So in this case:

r = 0.10 / ( 1 - 0.10 = 0.90 )

= 11.11%


See also