imported>Doug Williamson |
imported>Doug Williamson |
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| 1. ''Cost of capital.''
| | The Global Financial Crisis usually refers to the global financial crisis starting in 2007/8, following the perturbances in the US property markets in 2006. |
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| A synonym the the [[cost of capital]].
| | The GFC is sometimes referred to as the crisis of 2008, or the Great Financial Crisis. |
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| In these contexts, discount rate means the yield used to calculate [[discount factor]]s and present values.
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| | In Europe, especially in the Eurozone, it is often conflated with the 2009 crisis of the Eurozone that was unrelated, but was somewhat accelerated and aggravated by it. |
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| 2. ''Short-term markets.''
| | An important impact for treasurers has been the financial services regulation required by G20 members in the form of Dodd-Frank in the USA, EMIR and CRD in the EU, and similar legislation throughout the G20 members. |
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| In short-term financial markets, 'discount rate' means the quoted market rate for traded instruments quoted at a discount.
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| The market discount rate is quoted based on a percentage of the ''maturity amount''.
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| <span style="color:#4B0082">'''Example 1: Discount rate calculation'''</span>
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| The maturity amount for an investment is £10m.
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| The gain for the single period from the start to the final maturity is £2m.
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| The periodic discount rate (d) is:
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| (d) = Gain / End amount
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| = 2 / 10
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| = '''20%'''
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| In the US the market, discount rate is sometimes known as the ''discount yield''.
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| This is different from a [[yield]] or interest rate, which is conventionally quoted based on a percentage of the ''starting amount''.
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| <span style="color:#4B0082">'''Example 2: Yield calculation'''</span>
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| The starting amount for an investment is £8m.
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| The gain for the single period from the start to the final maturity is £2m.
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| The periodic yield (r) is:
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| (r) = Gain / Start amount
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| = 2 / 8
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| = '''25%'''
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| Notice that the discount rate and the yield calculated above both relate to exactly the same deal.
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| £8m is invested now, and £10m is repaid at the end of one period.
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| The discount rate of 20% and the yield of 25% both summarise the same deal, using different conventional bases.
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| 3. ''Pensions.''
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| In the field of pensions, discount rate means the rate used to discount future liabilities of a Defined benefit pension scheme in order to calculate the present value of the liabilities, often for the purpose of comparing them with the market value of the scheme’s assets.
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| Historically it was common to use the blended rate of investment return expected on the actual assets in the scheme, but typically now a market rate is used, such as the government bond or AA corporate bond yield for a fixed income security with a similar duration to that of the underlying liabilities.
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| 4. ''Central banking.''
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| In US central banking, the term 'discount rate' means the interest rate that member banks pay the Federal Reserve when the banks use securities as collateral.
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| The discount rate acts as a benchmark for interest rates issued.
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| Other central banks also have similar discount rates.
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| == See also == | | == See also == |
| * [[Cost of capital]] | | * [[Big Bang]] |
| * [[Direction of influence]] | | * [[Capital Requirements Directive]] (CRD) |
| * [[Discount]] | | * [[Credit crunch]] |
| * [[Discount basis]] | | * [[Dodd-Frank]] |
| * [[Discount instruments]] | | * [[EMIR]] |
| * [[Discounted cash flow]] | | * [[European Fund for Strategic Investments]] |
| * [[DR]] | | * [[eurozone crisis]] |
| * [[Interest rate]] | | * [[FC]] |
| * [[Monetary policy]] | | * [[Great Depression]] |
| * [[Nominal annual discount rate]] | | * [[Great Recession]] |
| * [[Periodic discount rate]] | | * [[Lehman]] |
| * [[Periodic rate]] | | * [[Turner Review]] |
| * [[Yield]]
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| ===Other links===
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| [http://www.treasurers.org/node/8837 Students: Triumph with timelines, The Treasurer, March 2013]
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| [[Category:Corporate_finance]] | | [[Category:Context_of_treasury]] |
| | [[Category:Corporate_financial_management]] |
| | [[Category:Financial_risk_management]] |
(GFC).
The Global Financial Crisis usually refers to the global financial crisis starting in 2007/8, following the perturbances in the US property markets in 2006.
The GFC is sometimes referred to as the crisis of 2008, or the Great Financial Crisis.
In Europe, especially in the Eurozone, it is often conflated with the 2009 crisis of the Eurozone that was unrelated, but was somewhat accelerated and aggravated by it.
An important impact for treasurers has been the financial services regulation required by G20 members in the form of Dodd-Frank in the USA, EMIR and CRD in the EU, and similar legislation throughout the G20 members.
See also
