Future-proof and Money market: Difference between pages
imported>Doug Williamson (Add link.) |
imported>Doug Williamson (Clarify that 365 days are used in a leap year. Source: Day count conventions page.) |
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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 fixed days. | |||
So Simple periodic interest = Quoted nominal annual rate x (Actual days) / 365. | |||
This applies in leap years as well as in normal years. | |||
: | <span style="color:#4B0082">'''Example 1'''</span> | ||
: | A 272 day GBP yield instrument quoted at 4% would pay periodic interest of: | ||
= 4% x 272 / 365 | |||
= | = 2.9808% per 272 day period. | ||
[[ | |||
[[Category: | |||
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. | |||
<span style="color:#4B0082">'''Example 2'''</span> | |||
A 272 day USD yield instrument quoted at 4% pays periodic interest of: | |||
= 4% x 272 / 360 | |||
= 3.0222% per 272 day period. | |||
== See also == | |||
* [[ACT/360]] | |||
* [[ACT/365 fixed]] | |||
* [[Capital market]] | |||
* [[Depo market]] | |||
* [[International money market]] | |||
* [[Market]] | |||
* [[Money market fund]] | |||
* [[Money market fund reform: a light at the end of the tunnel?]] | |||
* [[Money market lines]] | |||
* [[Nominal annual rate]] | |||
* [[Simple interest]] | |||
* [[Wholesale markets]] | |||
[[Category:Long_term_funding]] |
Revision as of 14:29, 26 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 fixed days.
So Simple periodic interest = Quoted nominal annual rate x (Actual days) / 365.
This applies in leap years as well as in normal years.
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.