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Cost, Yield and Mechanics

In: The Medium-Term Loan Market

Author

Listed:
  • J. A. Donaldson

    (Imperial Chemical Industries)

  • T. H. Donaldson

    (Morgan Guaranty Trust Company of New York)

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.

Suggested Citation

  • J. A. Donaldson & T. H. Donaldson, 1982. "Cost, Yield and Mechanics," Palgrave Macmillan Books, in: The Medium-Term Loan Market, chapter 4, pages 60-78, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-06242-3_4
    DOI: 10.1007/978-1-349-06242-3_4
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