Banks routinely borrow money among themselves overnight, in order to cover their transactions during the day. The interest rate paid on these one-day loans is called the overnight rate and therefore is a nominal rate of interest compounded daily, j365.
If the ABC Bank borrows $20 000 000 for one day at a rate of j365 = 4%,
Calculate the interest payment on the one-day loan.
Calculate the interest payment if the rate had been 4% compounded continuously.
If ABC borrowed $25 000 000 and paid back $25 002 568 the next day, what effective rate of interest, j, was it charged?