SONIA
SONIA (Sterling Overnight Index Average) is a benchmark interest rate used in the UK for financial transactions. It is the average of the overnight unsecured lending rate for British Pound Sterling. It is calculated by the Bank of England and is used to set the interest rate for a variety of financial products, including derivatives, bonds, and loans.
History of SONIA
SONIA was first introduced in 1997 as a replacement for the London Interbank Offered Rate (LIBOR). LIBOR had been the benchmark rate for financial transactions in the UK since the 1980s, but it was subject to manipulation and was no longer considered reliable. SONIA was developed as an alternative to LIBOR, and it is now the primary benchmark rate for financial transactions in the UK.
SONIA is calculated by the Bank of England and is based on the overnight unsecured lending rate for British Pound Sterling. The rate is calculated using data from a panel of banks and is published daily. It is used to set the interest rate for a variety of financial products, including derivatives, bonds, and loans.
Comparison Table
| Rate | LIBOR | SONIA |
|---|---|---|
| Calculation | Based on survey of banks | Based on actual transactions |
| Reliability | Susceptible to manipulation | More reliable |
Summary
SONIA is a benchmark interest rate used in the UK for financial transactions. It is the average of the overnight unsecured lending rate for British Pound Sterling and is calculated by the Bank of England. It is used to set the interest rate for a variety of financial products, including derivatives, bonds, and loans. SONIA is more reliable than LIBOR, which it replaced in 1997, and is based on actual transactions rather than surveys of banks.
For more information about SONIA, visit the Bank of England website or the Financial Conduct Authority website.
See Also
- LIBOR
- Overnight Index Swap
- Repurchase Agreement
- Interest Rate Swap
- Forward Rate Agreement
- Basis Swap
- Overnight Rate
- Euribor
- Swap Spread
- OIS Discounting
