Money market: Difference between revisions
imported>Doug Williamson (Link with ACT/360 and ACT/365 fixed pages.) |
imported>Doug Williamson (Clarify that 365 days are used in a leap year. Source: Day count conventions page.) |
||
| Line 11: | Line 11: | ||
So Simple periodic interest = Quoted nominal annual rate x (Actual days) / 365. | So Simple periodic interest = Quoted nominal annual rate x (Actual days) / 365. | ||
This applies in leap years as well as in normal years. | |||
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.
