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What Is a Basis Point

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What is a basis point?


Definitions:

Forward Exchange Rate

A contractually fixed exchange rate for the future exchange of currencies at a specified date, used to hedge against foreign exchange risk.

Arbitrage

The simultaneous purchase and sale of the same assets in different markets to exploit price differences for a profit.

Risk-free Rate

The expected yield from an investment that carries no risk of losing money, often identified by the returns on government bonds.

Futures Market

A financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.

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