imported>Doug Williamson |
imported>Doug Williamson |
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| The rate of return - or cost of borrowing - ''per annum'' named or quoted in a market, under the quoting convention for the given market.
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| | A financial firm whose disorderly failure would, because of its: |
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| Market quotations are usually given per annum, and for this reason the term ''nominal rate'' is often used interchangeably with nominal annual rate.
| | (i) Size, |
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| | (ii) Complexity, and |
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| | (iii) Systemic interconnectedness |
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| <span style="color:#4B0082">'''Example 1'''</span>
| | cause significant disruption to the wider financial system and to economic activity in its (main) country or region of operation. |
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| GBP overnight interest payable at the periodic rate of 0.014% per day, would conventionally be quoted on a nominal annual basis as:
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| = number of times the period fits into a conventional year x periodic rate
| | The idea was developed for banks considered too big to fail. |
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| = 365 x 0.014%
| | It has been extended to other types of institutions and the Financial Stability Oversight Council in the US, for example, has provisionally identified certain insurance companies and investors as potential US SIFIs. |
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| = 5.11%.
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| The nominal annual rate is sometimes also known as a 'quoted rate', 'market rate, or 'nominal rate'.
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| The nominal annual rate should not be confused with the effective annual rate, which is usually different.
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| '''Notation'''
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| Nominal annual interest rates and yields are often denoted by 'R'.
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| This distinguishes them from periodic interest rates and yields (r), and from effective annual rates (EAR).
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| '''Conversion formulae'''
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| Using the notation above:
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| R = nominal annual interest rate or yield
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| r = periodic interest rate or yield
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| n = number of times the period fits into a conventional year
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| '''''To convert from a periodic rate (r) to a nominal annual rate (R)'''''
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| R = r x n
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| '''''To convert from a nominal annual rate (R) to a periodic rate (r)'''''
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| r = R / n
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| <span style="color:#4B0082">'''Example 2'''</span>
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| GBP interest is quoted at a nominal annual rate of 5.11% for daily interest calculation.
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| Calculate the periodic rate per day.
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| r = R / n
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| = 5.11% / 365
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| = 0.014%
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| <span style="color:#4B0082">'''Example 3'''</span>
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| The periodic rate for GBP interest is 0.01% per day.
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| Calculate the nominal annual rate.
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| R = r x 365
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| = 0.01% x 365
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| = 3.65%
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| == See also == | | == See also == |
| * [[Continuously compounded rate of return]] | | * [[SIPS]] |
| * [[Coupon rate]] | | * [[Systemic risk]] |
| * [[Daily rate]] | | * [[Global SIFI]] |
| * [[Day count conventions]] | | * [[Leverage Ratio]] |
| * [[Effective annual rate]] | | * [[Too Big To Fail]] |
| * [[Money market]]
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| * [[Nominal]]
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| * [[Periodic discount rate]]
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| * [[Periodic rate of interest]]
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| * [[Periodic yield]]
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| * [[Quarterly rate]]
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| * [[Rate of return]]
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| * [[Semi-annual rate]]
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| * [[Nominal annual yield]]
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| [[Category:Manage_risks]] | | [[Category:Accounting,_tax_and_regulation]] |
| | [[Category:The_business_context]] |
(SIFI).
A financial firm whose disorderly failure would, because of its:
(i) Size,
(ii) Complexity, and
(iii) Systemic interconnectedness
cause significant disruption to the wider financial system and to economic activity in its (main) country or region of operation.
The idea was developed for banks considered too big to fail.
It has been extended to other types of institutions and the Financial Stability Oversight Council in the US, for example, has provisionally identified certain insurance companies and investors as potential US SIFIs.
See also
