Currency Day-Count Conventions in Covered Interest Rate Parity

Summary

The exchange addresses which day-count bases to use when calculating implied interest rates from covered interest rate parity for the Australian dollar and US dollar pair. The accepted response points to a market-conventions reference, and another response confirms the conventions it gives for the currencies: Actual/360 for USD LIBOR and Actual/365 for AUD. The practical lesson is to apply the relevant currency’s money-market day-count convention when translating annualized interest rates into accrual over a period.

The exchange is brief and does not show a covered-parity calculation, specify a trade tenor, or discuss the details of particular instruments and dates. It refers specifically to USD LIBOR and AUD conventions, so users should verify conventions for the relevant rate benchmark and contract rather than assume every instrument follows the same basis. The material provides a convention-level answer, not a complete workflow for estimating implied rates.

Key ideas

• Covered interest parity calculations use day-count conventions associated with each currency’s rates.
• The response gives Actual/360 for USD LIBOR and Actual/365 for AUD.
• The day-count basis affects the accrual calculation over a contract period.
• The exchange does not provide a worked calculation or cover conventions for other benchmarks.

Tags

# Day count conventions for covered parity theory


# Day count conventions for covered parity theory












I am calculating implied interest rates using covered interest rate parity theorem. I am looking at the Australian US currency pair. When evaluating day counts, should I be using Actual/365 for Australia and Actual/360 for US?

## Answer by Jonas K (score 8, accepted)

https://quant.stackexchange.com/a/8822

OpenGamma has a good resource for market conventions.

## Answer by Matt Wolf (score 2)

https://quant.stackexchange.com/a/8815

Correct, USD libor is based on act/360, AUD on act/365 for currencies.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.