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Cost, Yield and Mechanics

  • J. A. Donaldson
  • T. H. Donaldson

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 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© J. A. Donaldson and T. H. Donaldson 1982

Authors and Affiliations

  • J. A. Donaldson
    • 1
  • T. H. Donaldson
    • 2
  1. 1.Imperial Chemical IndustriesUK
  2. 2.Morgan Guaranty Trust Company of New YorkLondonUK

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