Interest Rate Index

The type of index produced from data on a group of similar financial instruments is known as an interest rate index. The interest rate that a lender can charge for a financial instrument like a mortgage is typically based on an interest rate index.

Changes in a single variable, such as the yield on U.S. Treasury securities, or a more nuanced set of rates might form the basis of an interest rate index. Using the monthly weighted average cost of funds among banks in a state as an example, it can be seen how one possible basis for an index could be. A broad range of financial instruments tracks a certain interest rate index.

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