Effective interest rate

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1. Financial reporting.

In relation to a financial asset or financial liability, the internal rate of return of the cash flows of the instrument, including the initial cost and the final maturity amount.

2. Hedging.

A hedged interest rate achieved, after interest rate risk management.

For example, the hedged interest rate achieved when hedging an interest rate exposure with an FRA.

3. Interest rates - comparability.

Annual effective rate.

See also