Chapter 3 Money Market Basis: Variations
Some money market instruments, particularly domestic UK Instruments, may have interest calculated based on the actual number of days elapsed, compared with a year of 365 days.
For example, in the UK, money market instruments such as UK sterling deposits, are calculated on an actual over 365 basis.
Test:
An investor purchases a money market security paying an interest rate of 5%.If the sum invested is USD100,000 and the investment period is 90 days, how much interest will the investor receive at maturity?
Answer: USD1250( = USD 100,000*5%X 90/360)
