A unit of measurement equal to one hundredth of a percentage point (0.01%), commonly used to describe changes in interest rates, bond yields, and other financial percentages. One hundred basis points equal one percentage point.
From Latin 'basis' meaning 'foundation' and Old French 'point.' The term emerged in bond trading to provide precise measurement of small yield changes, establishing a standard 'basis' for comparing rate movements across different securities.
Basis points eliminate the confusion between percentage points and percentages - when the Fed raises rates by 25 basis points, everyone knows exactly what that means! It's the universal language of finance that prevents costly misunderstandings, like the difference between a 2% rate going to 3% (100 bps) versus going to 2.02% (2 bps).
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