The day count convention determines how interest accrues over time in a variety of transactions, including bonds, swaps, bills and loans. Interest is usually expressed to accrue at a rate per annum (the reference period). It is often due and payable at shorter intervals, usually a number of months (the interest period).
The day count convention regulates how the parties are to calculate the amount of interest payable at the end of each interest or other period. It is commonly expressed as a fraction. The numerator will be the convention for the number of days in the period - usually actual or a notional 30. The denominator is the convention for the number of days in the reference period - often 360 or 365.
Conventions vary depending on the market type, location and the currency in question. For example, euro-denominated bonds are usually calculated on an actual/actual basis, while fixed rate non-euro denominated bonds are often calculated on a 30/360 basis. The London interbank market, on the other hand, operates on the basis of actual/360, except where the currency is sterling, for which the London interbank convention is actual/365.
Official website:
Personal Note:
3. http://www.icap.com/what-we-do/global-broking/~/media/Files/I/Icap-Corp/pdfs/icap-interest-rates.pdf
ACT
- The Association of Corporate Treasurers.
- Abbreviation for ACTual, in day count conventions.
- The former UK Advance Corporation Tax.
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