SOFR
SOFR is a US dollar overnight reference rate administered by the Federal Reserve Bank of New York. It reflects transactions in the Treasury repurchase agreement market and is based on a volume-weighted median of eligible transactions. Financial contracts may reference compounded SOFR over an interest period plus a contractual margin. Overnight SOFR differs in currency, collateral and methodology from sterling SONIA and from discontinued US dollar LIBOR settings. Read the precise contract conventions before calculating an interest payment.
Worked example
A floating-rate US dollar loan uses compounded SOFR plus 1.5 percentage points. If compounded SOFR for a period corresponds to an annualised 4%, the indicative annualised contractual rate is 5.5%, before applying its stated day-count convention.
Common mistake
Describing SOFR as an unsecured sterling benchmark or assuming the daily overnight rate is automatically a forward-looking term rate.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Supporting | September 2026–June 2027 |