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Basis Point

In finance, a basis point (bp) is a common unit of measurement used to indicate a shift in the interest rate of a financial instrument. One basis point is equivalent to 1/100th of 1% or 0.01%. The use of basis points to measure the difference, or spread, between two interest rates is a standard practice in the financial industry.

For example, if the interest rate on a loan increases by 25 basis points, it means that the interest rate has risen by 0.25%. Similarly, if the spread between two interest rates is 50 basis points, it implies that the difference between them is equal to 0.50%.


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