A deposit that a bank holds for another. An interbank deposit is transacted as an arrangement between two banks, with one holding funds in an account for the other. Interbank deposits are traded exclusively among financial institutions in the so-called interbank market.
This deposit represents a private fixed income instrument whereby a bank with surplus resources (excess reserve balances) can lend a bank with shortfall/ deficit at an interest rate negotiated in the interbank market (DI rate)- being the average rate of interbank transactions carried out through interbank deposits (certificates of deposits). This rate is calculated based on fixed interbank deposit transactions settled within one business day.
The interbank deposit is not negotiable- i.e., it cannot be sold to other investors. These instruments have high liquidity and carry a very low risk, usually supported by the soundness of the banks that participate in the interbank market.
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