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An index reports changes up or down, usually expressed as points and as a percentage, in a specific financial market, in a number of related markets, or in an economy as a whole.
Each index -- and there are a large number of them -- measures the market or economy it tracks from a specific starting point. That point might be as recent as the previous day or many years in the past.
For those reasons, indexes are often used as performance benchmarks against which to measure the return of investments that resemble those tracked by the index.
A market index may be calculated arithmetically or geometrically. That's one reason two indexes tracking similar markets may report different results. Further, some indexes are weighted and others are not.
Weighting means giving more significance to some elements in the index than to others. For example, a market capitalization weighted index is more influenced by price changes in the stock of its largest companies than by price changes in the stock of its smaller companies.
(1) A statistical indicator that measures changes in the economy in general or in particular areas.An example is the cost-of-living index.(2) A reference point against which measurements are taken for purposes of making future adjustments.An adjustable-rate mortgage might begin with an interest rate of 6 percent and provide that it will increase or decrease in a like percentage as the increase or decrease between today's quoted price for 10-year U.S.Treasury bonds and the price on the loan's annual anniversary date.We would say that 10-year T-bonds are the index.
Some leading loan indices include
• Wall Street Journal prime
• Federal discount rate
• Fed funds rate
• 11th District Cost of Funds
• 10-year Treasuries
• One-year LIBOR