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:
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.
A 272 day GBP yield instrument quoted at 4% would pay periodic interest of:
= 4% x 272 / 365
= 2.9808% per 272 day period.
For EUR, USD and most other currencies yield instruments: Actual / 360 days.
So Simple periodic interest = Quoted nominal annual rate x [Actual days] / 360.
A 272 day USD yield instrument quoted at 4% pays periodic interest of:
= 4% x 272 / 360
= 3.0222% per 272 day period.
- ACT/365 fixed
- Capital instrument
- Capital market
- Depo market
- European Money Markets Institute
- Financial asset
- Financial liability
- Financial markets
- International money market
- Leap year
- Money market fund
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- Money market lines
- Nominal annual rate
- Primary market
- Secondary market
- Simple interest