Market Interest Rates and quotes

Abstract

In many, if not in all discussion about valuing financial instruments, especially interest rate derivatives, the risk-free interest rate is an important topic. The risk-free interest rate are used to discount projected or expected cash-flows to a present value. But, what rate should be used? A short answer should be that this depends on what instrument to value, the counterparty and the agreements made. A better answer might be that the rate should be chosen to reflect the funding cost of buying the instrument. In this section we will discuss how the market situations in the near future have changed the view about the risk-free interest rate.