Basis Point

A basis point (bp) is a unit of measure used in finance to describe the percentage change in the value of a financial instrument. One basis point is equal to 1/100th of a percentage point, or 0.01%. Therefore, 100 basis points is equivalent to 1%. Basis points are commonly used to denote changes in Interest Rates, bond yields, and other financial percentages to provide precision and clarity.

For example, if a Central Bank raises its Interest Rate from 2.00% to 2.25%, it has increased the rate by 25 basis points. Similarly, if a bond yield drops from 3.50% to 3.00%, it has fallen by 50 basis points.

In practical applications, basis points help investors understand small changes in financial metrics without ambiguity. For instance, a fee increase from 1.00% to 1.50% can be described as an increase of 50 basis points.