Clearing, Settlement and Custody

Example

XYZ issues FRN maturing in 2003. The interest will be fixed

quarterly at LIBOR plus 25 basis points and the next fixing is

due 30 September.

Reference bank 3-month LIBOR quoted at

Bank A 5

31

32

%

Bank B 5

15

16

%

Bank C 5

15

16

%

Bank D 5

29

32

%

Average rate 5

15

16

%

Margin 25 basis points

The interest rate is determined as being 6

3

16

% (the average

reference banks’ rate of 5

15

16

% plus the margin of 25 b.p.) from

30 September to 30 December.

There are variations to this, for instance FRNs issued in Euros would

use the Euribor (European Interbank Offered Rate) as the bench-

mark. Other types of FRN include:

Clearing, Settlement and Custody30

Table 3.4 Money market ...