Capital markets union and Discount basis: Difference between pages

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


The capital markets union is an initiative of the European Union designed "to achieve a true single market for capital in Europe."


If the initiative is successful, a capital markets union will be the result, widening access to a range of funding sources.''European Union (EU) bank supervision''.
'''Example'''  


The banking union is the arrangement in the Euro zone under which the European Central Bank (ECB) regulates the financial stability of banks through its Single Supervisory Mechanism (SSM).
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.


:<span style="color:#4B0082">'''''Capital markets union depends on fiscal union'''''</span>
(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%.)


:"In 2012 the eurozone agreed to create a banking union...


:The eurozone also embarked on an ambitious programme to harmonise capital markets and reduce dependency on banks.
The relationship between the periodic discount rate (d) and the periodic yield (r) is:


:But both the banking and capital markets union depend on fiscal union - and that remains incomplete and contentious."
r = d / ( 1 - d )


:''The Treasurer magazine, Cash Management Edition April 2019 p22, Frances Coppola, economics and finance commentator and speaker.''
So in this case:


r = 0.10 / ( 1 - 0.10 = 0.90 )


== See also ==
= 11.11%
* [[Bank supervision]]
* [[Capital markets union]]
* [[Eurozone]]
* [[European Central Bank]]
* [[Fiscal policy]]
* [[Fiscal union]]
* [[Resolution]]
* [[Single Resolution Board]]
* [[Single Supervisory Mechanism]]




==See also==
== See also ==
*[[AFME]]
* [[Discount instruments]]
*[[Banking Union]]
* [[Discount rate]]
*[[Capital market]]
* [[Sterling commercial paper]]
*[[European Commission]]
* [[US commercial paper]]
*[[European Union]]
* [[Yield basis]]
*[[Eurozone]]
*[[International Capital Market Association]]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]

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