Since tracking, monitoring and assessing each security existing in the financial market is obviously very challenging, the presence of financial indexes offer investors an easy and convenient way of viewing the market in its entirety. In essence, an index statistically measures the changes that occur in the economy or in the financial stock market. Indexes are like imaginary portfolios of securities and stocks used to represent a certain portion or part of the financial market. Every index uses their own computation methodology and these computations are typically expressed in their base values. Knowing this, change in index percentage is deemed more important than the indexes’ actual numeric value.
Financial indexes also offer the opportunity for one to view different market sectors, whether it be domestic or global. Majority of these indexes gauge companies or corporations basing on their market capitalization. So for instance, if a company has a market capitalization amounting to $1,000,000 with an index value for all its shares at $100,000,000, then that company will register a 1% worth of index.
Some of the mostly followed financial indexes, which you should pay attention to, are listed below. It is important that you check for updates from time to time since changes are always expected in these indexes.
Prime Rate Financial Index
Prime rate has been a commonly used interest rate among US banks. Whether it is a regular bank, lending institution, or credit unions, all of these institutions use U.S. Prime rate as the foundation or base rate for pricing their loans, may it be short-term or long-term. The consistency of the prime rate index is perhaps one of the reasons why many pay attention to it. Because the index remains consistent, it allows individuals or business entities to effectively compare similar types of loans that are offered by competing banks. Majority of US banks use Prime Interest Rate when setting rates for their loan products, like the home equity loans, car loans, or credit cards, therefore a decrease or increase on the prime rate index would directly influence the rate of any loan products that is tied to it.
11th District COFI
This index measures the weighted monthly average of the paid interest rates on savings and checking accounts provided by financial institutions in the states of Nevada, California and Arizona. The COFI (Cost of Funds Index) is mainly used for adjustable loan rates, and is usually published every last business day of the month.
Six Month LIBOR (London Interbank Offered Rate) Index
This financial index measures the average rate of interest that banks are willing to extend to each other in a 6-month period within London’s money market. The 6-month LIBOR rate is also occasionally used in setting rates of adjustable loan rates. Therefore, the loan rate plus a set margin will then define how much the interest rate the consumer will have to pay.
1 Year T-Bill Index
This index, which is being calculated by the US Treasury, is used in adjusting yields made from Treasury securities that are actively traded on a 1-year constant maturity. Compared to the 11th District COFI and 6-month LIBOR, the 1-year T-Bill index adjust s more quickly to match the current condition of the financial market.