Cost, Yield and Mechanics

J. A. Donaldson and T. H. Donaldson
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J. A. Donaldson: Imperial Chemical Industries
T. H. Donaldson: Morgan Guaranty Trust Company of New York

Chapter 4 in The Medium-Term Loan Market, 1982, pp 60-78 from Palgrave Macmillan

Abstract: Abstract All bank lending, domestic or international, which bears a variable rate of interest requires a marker to which the interest rate is linked. The marker may be announced by the bank, as with prime rate in the U.S., or it may be a market rate such as LIBOR (London Interbank Offered Rate), or a rate set by the government or central bank, such as the German Lombard rate. Announced rates often include a margin intended to compensate for the minimum cost and risks the bank undertakes and to provide a profit. Market rates are a notional or actual indicator of the cost of money, to which the bank adds a similar margin. Government or central bank rates are more of a proxy for cost of money than an indicator, but also require a margin.

Keywords: Credit Risk; Foreign Bank; Interbank Market; Marker Rate; American Bank (search for similar items in EconPapers)
Date: 1982
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DOI: 10.1007/978-1-349-06242-3_4

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