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John Moffat.
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Jiya024
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sir sometimes in money market hedging we are given “6motnh LIBOR” or “sterling borrowing rate upto 6months” but we still use it them as annual LIBOR, why?
what does this 6month signify?
John Moffat
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As I do explain in my free lectures, interest rates are always quoted as annual rates (unless specifically told differently, which is unlikely).
However the rate of interest given on deposits (or charged on borrowings) will be different depending on for how long the money is being deposited (or borrowed). For example, if you deposit money for a fixed term of 6 months the bank might give you interest at the rate of 5% per year, but if you deposit for a term of 12 months they might give you interest at the rate of 7% per year.
However although the interest for 6 months borrowing (in my example) is quoted at 5% per annum, you would only obviously get 6 months worth of interest this annual rate.
Jiya024
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