Basis points are basically percentage points. One basis point is equal to 0.1%. Such small changes or ups and downs in the interest rates, the exchange rates and bond yields are described through the concept of basis points. Basis points are used by the banks and other financial institutions to describe any changes in their interest rates.
Basis points can be better explained through an example
Say if the lending interest rate is increased by 25 basis points and the prevalent interest rates present in the market is 5.00%. Then with the increase of interest rates by 25 basis points means the new lending rates would be 5.25%
For a change of 1% in interest rates the change in terms of basis points would be 100 basis points.
Posted on 18-Sep-2009, 05:24 PM