Basis points

A basis point is one hundredth of a percentage point (0.01%). Basis points are often used to measure changes and differentials in interest rates and margins. For example, if a floating interest rate is set at 25 basis points more than Libor, and Libor is 3.5%, the floating rate will be 3.75%.

Basis points are also convenient in discussing margins, because percentage changes are often small. It is important to discuss such small changes as operational gearing or financial gearing often means they have big effects on the bottom line.

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