Basis points, often abbreviated as BP and sometimes denoted as bps or bips, are a unit of measure used in finance to describe the percentage change in the rate or value of financial instruments. One basis point is equal to 0.01% or 0.0001 in decimal form.
Basis points are used as a convenient way of expressing small changes in interest rates, yields, and equity indexes, and the differences in yields between securities. They help to clarify small percentages changes and avoid confusion around the language of these changes.
For example, if an interest rate rises from 1.5% to 1.7%, it has risen by 20 basis points. Similarly, a 0.5% fee would be expressed as 50 basis points.
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