Interest Rates

- An interest rate - Define the amount of money borrower promises to pay the lender.

- Example type of interest rates - Mortgage rates,deposit rates prime borrowing rates etc.

- The interest applied is based on the credit risk. The credit is the risk that will be defaulted by
the borrower.

- The higher the credit risk, Higher the interest rate will be applied.

- Interest rates are often expressed in basis points. 1 basis point is 0.01% per anum.

Treasury Rates

- Treasury rate are rates at which the goverment borrow from their own currency.

- Example US Treasury rates are the rates at which the US government borrow in US Dollars.

- Another example: Japanese treasury rates are the rates at which the Japenses government
borrow in Yen.

- It is usually assumed the government that there is no chance the government will not default
on an obilgation denominated in it own currency.

- Treasury rates are therefor total RISK FREE RATE.

Libor - London Interbank offered rate.

- It is and unsecured short term borrowing rates between banks.

- Libor rates have tradittionally been calculated each business day for 10 currencie and 15
borrwoing periods.

- The borrowing periods range from one day to one year.

- Interest rate swap - uses benchmarch for Libor rates.

- When Libor rates are published the top quate and