7. Excel For Finance Tips - What is a Basis Point ?
What is a Basis Point ?
A basis point is quite simply 0.01 of 1% So if an interest rate is 5.00% and it increases to 5.01%, that corresponds to 1 basis point increase. What is it used for ? Profit margins for fixed income products are measured in basis points.
Lets look at an example in Excel:
In this example, we have a 1 year loan of 100,000,000. The bank can borrow money at 5.00% and loans the money at 5.01% The profit on this trade is 10,000.
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