Inside the Currency Market: Mechanics, Valuation, and Strategies

Day-Count Convention

The original example factored interest payments based on 365 days a year. After the BBA administers LIBOR, the International Swap and Derivatives Association (ISDA) sets the benchmark—since 1998—for fixed rates on interest-rate swaps and other instruments through its ISDAFIX. They set rates for the euro, Hong Kong dollar, Japanese yen, Swiss franc, British pound, and the U.S. dollar. For the U.S. dollar, they also provide swap spreads. Day-count convention asks how to factor accrued interest for traded instruments. The United States, Switzerland, and the euro zone administer an actual/360 basis, Great Britain and commonwealth nations administer an actual/365 basis. To factor leap years, actual/actual is used. Other instruments ...