What is the Difference Between Open Market and Interbank Rate

Open market rate and interbank rate are two different terms used to refer to exchange rates in the foreign currency market. Here's a brief overview of the differences between these two rates

What is Open Martket Rate:

There is a slight difference between in Open Market and Interbank Rate. The open-market rate is the rate of interest paid on any debt security that trades in the open market. Interest rates for such debt instruments as commercial paper and banker's acceptances would fall under the category of open-market rates.

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What is Open Interbank Rate:

The interbank rate or interbank exchange rate is a financial concept used to express foreign exchange rates, which are paid by banks when they conduct currency trading with other banks. Interbank, or “between banks,” is when a bank pursues business with another bank.

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Key Differences of Open Market and Inter Bank rate

• The open market rate is determined by supply and demand forces in the open market, whereas the interbank rate is set by banks buying and selling currencies from each other.
• Open market rates tend to be more volatile and fluctuate frequently, while interbank rates are more stable and predictable.
• Open market rates are used by individuals and businesses for their foreign currency transactions, while interbank rates are used by banks for their own transactions.
• The spread between the open market rate and the interbank rate can vary, and this difference represents the profit margin for banks and currency dealers.