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Home Dictionary I Interest Rate Parity Interest rate parity is the fundamental equation that governs the relationship between interest rates and exchange rates. The basic premise of interest rate parity is that hedged returns on investments in different currencies should be the same, regardless of their interest rates. Parity is used by forex traders to look for arbitrage opportunities. Blended Rate
September 25, 2022 The compound rate is the interest rate charged on a loan, which is a combination of the previous rate and the new rate. Dove
September 25, 2022 Pigeons are believed to be more interested in stimulating job growth through low interest rates than in controlling inflation. Euro Interbank Offer Rate (Euribor)
September 25, 2022 Euribor is the interbank overnight rate, which consists of the average interest rates of a number of major European banks, which are used to lend to each other in euros. Expectations Theory
September 25, 2022 Expectancy theory predicts future short-term interest rates based on current long-term interest rates. Federal Discount Rate
September 25, 2022 The federal discount rate is the interest rate that the Federal Reserve System (FRS) charges banks for borrowing money from the Federal Reserve Bank. Fisher Effect
September 25, 2022 The Fisher Effect is an economic theory created by economist Irving Fisher that describes the relationship between inflation and real and nominal interest rates. Guaranteed Investment (Interest) Certificate (GIC)
September 25, 2022 A Guaranteed Investment Certificate (GIC) is an investment sold by Canadian financial institutions. Hawk
September 25, 2022 Hawks are politicians and advisers who advocate higher interest rates to keep inflation in check. Interbank Rate
September 25, 2022 The Interbank Rate, also known as the Federal Funds Rate, is the interest charged on short-term loans made between financial institutions. Interest Rate Derivative
September 25, 2022 An interest rate derivative is a financial contract whose value is based on some underlying interest rate or interest-bearing asset. Interest Rate Sensitivity
September 25, 2022 Interest rate sensitivity measures how much the price of a fixed income asset changes when the interest rate changes. Key Rate
September 25, 2022 The key rate determines the lending rates for banks, as well as the cost of a loan for borrowers. Legal Rate of Interest
September 25, 2022 The legal interest rate is the highest interest rate that can be legally charged on any type of debt. London Interbank Bid Rate (LIBID)
September 25, 2022 LIBID - London Interbank Offered Rate, the “offer” rate at which banks are willing to borrow deposits in Eurocurrency. Low Interest Rate Environment
September 25, 2022 A low interest rate environment occurs when the risk-free rate is set below the historical average. Market Segmentation Theory
September 25, 2022 Market segmentation theory states that long-term and short-term interest rates are not related to each other because they have different investors. Negative Interest Rate
September 25, 2022 Negative interest rates are a form of monetary policy in which interest rates fall below 0%. Negative Interest Rate Environment
September 25, 2022 A negative interest rate situation exists when overnight loan rates fall below zero percent. Nominal Interest Rate
September 25, 2022 Nominal interest rate refers to the interest rate before inflation. Open Mouth Operations
September 25, 2022 Open mouth operations are broadcast where the Fed or central bank thinks interest rates and inflation should be in the short to medium term. Overnight Rate
September 25, 2022 Overnight rates are the rates at which banks lend money to each other at the end of the day in the overnight market. Prime Rate
September 25, 2022 The prime rate is the interest rate that commercial banks charge their most creditworthy corporate clients. Real Interest Rate
September 25, 2022 The real interest rate is equal to the observed market interest rate adjusted for inflation. Reference Rate
September 25, 2022 The phrase “reference rate” refers to the base rate against which other interest rates are pegged. Sterling Overnight Interbank Average Rate (SONIA)
September 25, 2022 The Sterling Overnight Index Average, or SONIA, is an index of very short-term unsecured loans between UK financial institutions.