In a 2014 report, the Financial Stability Board (FSB) recommended developing a risk-free rate (RFR). Which statement about an RFR is correct?
Quiz: Major Benchmark Rates
Last reviewed: September 25, 2026
This is a draft, shown for review before publication.
5 questions to check your understanding of the chapter “Major Benchmark Rates”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.
Question 1
Answer and explanation
Answer: C
An RFR is a benchmark rate that contains almost no bank credit risk. The FSB report expected RFRs to be used mainly in derivatives trades. In many derivatives trades, the parties do not want to take on bank credit risk through the trade, so they have no need to reference a rate that also includes that credit risk.
A rate at which a bank lends to another bank without collateral for a set period is a feature of an IBOR (an interbank benchmark rate), and it includes bank credit risk.
TONA (Tokyo Overnight Average Rate), which was chosen as the Japanese yen RFR, is the rate on funds repaid on the next business day. It does not fix a three-month rate at the start of the period, so on its own it cannot be used in trades that need the rate fixed at the start. For this reason, TORF (Tokyo Term Risk Free Rate), a term rate RFR, is calculated separately in Japan.
TONA is also a rate on transactions without collateral (unsecured transactions). A secured rate was not chosen as the Japanese yen RFR.
Learn more: What Is a Benchmark Rate?
Question 2
As a hypothetical example, suppose that on one day, uncollateralized O/N (overnight) call trades arranged by money market brokers were done at 0.460% for 500 billion yen, at 0.470% for 200 billion yen and at 0.480% for 300 billion yen. Using the Bank of Japan's calculation method, what is TONA for that day?
Answer and explanation
Answer: A
The Bank of Japan calculates TONA as the average of the rates weighted by the volume at each rate. The rate-volume products are 0.460 × 500 = 230, 0.470 × 200 = 94 and 0.480 × 300 = 144, for a total of 468. Dividing this by the total volume of 1 trillion yen (1,000 billion yen) gives 0.468, so TONA for the day is 0.468%. The result is given to three decimal places (rounded at the fourth decimal place).
0.470% is the simple average of the three rates and ignores the differences in volume. In this example, the lowest rate, 0.460%, has the largest volume (500 billion yen), so the weighted average is lower than the simple average. 0.460% is the rate with the largest volume. 0.472% is the weighted average with the volumes assigned in reverse order. That puts 300 billion yen at 0.460%, 200 billion yen at 0.470% and 500 billion yen at 0.480%, which mixes up which rate goes with which volume. Besides the weighted average, the Bank of Japan also publishes the day's highest and lowest rates and the O/N volume.
Learn more: TONA
Question 3
Which data are used to calculate TORF?
Answer and explanation
Answer: B
TORF is calculated from the rates on the fixed side of yen OIS. An OIS is an interest rate swap that exchanges a fixed rate for a floating rate calculated by compounding TONA over a set period, and its fixed rate reflects where TONA is expected to go over that period. The inputs are executed trades (transaction data) and orders placed with the intention to trade (quote data). Both are for yen OIS with terms of one, three and six months that are cleared at a central counterparty, either Japan Securities Clearing Corporation (JSCC) or LCH. The data are reported by brokers selected by QUICK Benchmarks (reporting brokers). Only centrally cleared trades are used so that counterparty credit risk does not enter the calculated rate.
Compounding TONA over the period is the other way to build a term rate from an RFR (TONA compounded in arrears), and the rate is fixed at the end of the period. Because TORF is derived from OIS trades, its rate is set at the start of the period. The day's TONA is an overnight rate and, as it is, cannot replace the term rates, such as three-month or six-month rates, that existing contracts referenced. Indicative quotes, which are not meant for trading, are not used to calculate TORF.
Learn more: TORF
Question 4
As a hypothetical example, take an interest rate swap with a notional amount of 5 billion yen whose floating rate is three-month Japanese Yen TIBOR (Tokyo Interbank Offered Rate). The TIBOR used for a calculation period of 91 days is 0.73%, and days are counted on a 365-day basis. What is the floating rate interest for this period?
Answer and explanation
Answer: D
In a trade with a floating rate based on TIBOR, the interest for each calculation period is computed from the TIBOR set before that period begins. The day count convention is a 365-day basis, so the interest is 5 billion yen × 0.73% × 91 ÷ 365 = 9,100,000 yen.
If TIBOR rises to 0.93% for the next period, the interest for the same 91 days is 11,593,151 yen (rounded to the nearest yen). That is 2,493,151 yen more than this period's 9,100,000 yen, so the floating rate payer pays that much more and the receiver receives that much more. If instead TIBOR falls to 0.53%, the interest is 6,606,849 yen. That is 2,493,151 yen less than this period, so the payer pays that much less and the receiver receives that much less.
36,500,000 yen is a full year of interest (5 billion yen × 0.73%) and does not reflect the length of the period. 9,125,000 yen treats the period as 0.25 years, and 9,000,000 yen treats the period as 90 days. Japanese Yen TIBOR counts days on a 365-day basis; the 360-day basis was used by Euroyen TIBOR, which was discontinued at the end of December 2024.
Learn more: TIBOR
Question 5
As a hypothetical example, suppose the Treasury repo transactions used in the calculation for a value date were only these five: USD 10 billion at 1.00%, USD 15 billion at 1.01%, USD 20 billion at 1.02%, USD 30 billion at 1.04% and USD 25 billion at 1.18%. Using the method of the Federal Reserve Bank of New York (New York Fed), what is SOFR (Secured Overnight Financing Rate) for that day?
Answer and explanation
Answer: B
SOFR is a volume-weighted median. The transactions are ordered from lowest to highest rate, their volumes are added up in that order, and the rate of the transaction at which the running total reaches 50% of the total volume becomes SOFR. The total volume is USD 100 billion, and half of it is USD 50 billion. The running total is USD 45 billion through the third transaction and USD 75 billion through the fourth, so USD 50 billion falls within the fourth transaction. SOFR for the day is 1.04%. The published value is rounded to 1bp (0.01%).
1.02% is the rate of the middle (third) of the five transactions, chosen without regard to volume. 1.05% is the simple average of the five rates, and 1.06% is the volume-weighted average (1.0625%) rounded to 1bp. The median does not change when the rates of transactions at the ends move. In this example, if the rate of the fifth transaction changed from 1.18% to 2.00%, SOFR would remain 1.04%, while the simple average would rise from 1.05% to 1.214% (before rounding).
Learn more: SOFR