A Proposal for Quoting Money Market Rates

Abstract

U.S. money market interest rates may be quoted in many different ways. Regardless of the method, however, the amount of the loan, the coupon, and the par value of the loan are the same. The only difference in the methods is how the interest rate is quoted. This multiplicity of ways of quoting interest rates is a cause of constant confusion for novices attempting to analyze money market instruments and has no value for experts. We propose a single way to quote money market interest rates regardless of the type of money market instrument. The proposed method is not only consistent for the various instruments; it is also consistent with the Truth in Lending Law.