# Basis point

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Basis point

A basis point (often denoted as bp or unicode|‱; rarely, permyriad) is a unit that is equal to 1/100th of a percentage point. It is frequently used to express percentage point changes less than 1. It avoids the ambiguity between relative and absolute discussions about rates. For example, a "1% increase" in a 10% interest rate could mean an increase from 10% to 10.1%, or from 10% to 11%.

It is common practice in the financial industry to use basis points to denote a rate change in a financial instrument, or the difference (spread) between two interest rates. This is partially due to the large effect of small changes to financial instruments. The basis point is also used to calculate changes in equity indexes and the yield of a fixed-income security.

Since certain loans and bonds may commonly be quoted in relation to some index or underlying security, they will often be quoted as a spread over (or under) the index. For example, a loan that bears interest of 0.50% above LIBOR is said to be 50 basis points over LIBOR.

Examples

A rate change from 5% to 6%, reflects a change of 1 percentage point or 100 basis points.

A rate change from 6.7% to 6.9% reflects a change of 0.2 of a percentage point or 20 basis points.

A rate change from 2.75% to 3.20% reflects a change of 0.45 of a percentage point or 45 basis points.

Another way (and probably the most concise expression) to approach what a basis point is: It is 1/10,000 ( 1/100 x 1/100). One percent of one percent.

Related units

*Percentage point
*Percent (%) 1 part in 100
*Permille (‰) 1 part in 1000
*Parts per million (ppm)
*Parts per billion (ppb)
*Parts per trillion (ppt)

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### Look at other dictionaries:

• basis point — A basis point is a unit of measure used in describing interest rates. One basis point is equivalent to 1/100th of a percent, or 0.01%. For example, if the prime rate increases by 50 basis points, it means that the rate has risen 0.5%. Category:… …   Law dictionary

• Basis Point — Базисный пункт величина равная одной сотой процента (0,01%), используемая для отображения изменения в норме дохода финансового инструмента (ценных правительственных бумаг, процентных ставок, акций компаний). Необходимость измерения столь малых… …   Финансовый словарь

• basis point — basis points N COUNT: usu pl In finance, a basis point is one hundredth of a per cent (.01%). [TECHNICAL] …   English dictionary

• basis point — n. a unit equal to 1/ 100 percent: used in measuring changes in interest rates, exchange rates, etc …   English World dictionary

• basis point — A unit of measurement for interest rates or yields that is expressed as a percentage. One hundredth of one percent. One hundred basis points equal one percent. American Banker Glossary In the bond market, the smallest measure used for quoting… …   Financial and business terms

• Basis point — In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 5% is 50 basis points greater… …   Financial and business terms

• basis point — (bp)    a unit of proportion equal to 0.01% or 10 4. The basis point is used in finance to measure small fluctuations in interest rates and the rates of return on investments. Prior to the introduction of the basis point, these fluctuations were… …   Dictionary of units of measurement

• basis point —   Eng. Punto base   Il punto base o basis point indica l unità minima di variazione di un determinato indice o mercato preso in considerazione …   Glossario di economia e finanza

• basis point — point One hundredth of one per cent; this unit is often used in finance when prices involve fine margins. See also tick …   Big dictionary of business and management

• Basis point —   A one one hundredth of one percent (i.e., 0.01%), used to express interest rates and bond yield differentials (7.500/o 7.15% = 0.35% or 35 basis points). It is a measure of the difference between a base rate and another rate. The points are one …   International financial encyclopaedia