Differential Rates and Transaction Costs. A toolkit for Practitioners, accountants and financial economists.

It is our main concern in this paper to make for the following stages: a) Firstly, stock and flow differential rates will be introduced. Secondly, reverse differential rates are expanded on. Then, the transaction costs function will be featured. As long as we proceed with these issues, fully solved examples are supplied. b) Next, we handle direct applications to financial markets securities. Namely, time deposits, zero coupon bonds, foreign currencies. In each case, not only intuitive acquaintance with the subject is given, but foundations and examples as well. The foundations are conveyed by six lemmas which also give computation guidelines to be used in practice. Among the main conclusions we can draw from this research, two of them deserve due attention: First, microstructure, trading and information should be given serious regard because they could have the last word when we attempt to pick out the real winners among market securities. Second, differential and reverse differential rates have a say whenever we want to know about what remains of financial rates of returns after transaction costs.