Business, Legal & Accounting Glossary
LIBOR stands for London Inter-Bank Offered Rate. It’s the rate of interest at which banks offer to lend money to one another in the so-called wholesale money markets in the City of London. Money can be borrowed overnight or for a period in excess of five years.
The most often quoted rate is for three-month money. ‘3 month LIBOR’ tends to be used as a yardstick for lenders involved in high-value transactions. They tend to quote rates as ‘points above LIBOR’. So if 3 months LIBOR were (say) six per cent, a bank may choose to lend to another bank at (say) 6 and a quarter per cent. e.g. a quarter per cent above 3 month LIBOR.
Lending to individuals tends to be based on the base rate which is set by the Bank of England. Base rates tend to be less volatile.
The LIBOR rates are set each day at 11 am by leading banks, but rates fluctuate throughout the trading session according to sentiment about the outlook for base interest rates.
LIBOR stands for London Interbank Offered Rate.
Libor is the short form of “London interbank offered rate”. This is that interest rate, which is charged by top banks when they lend to each other. This rate of interest is used as a benchmark by banks for calculation of other types of the interest rate charged by them on other varieties of loan. It may be noted that Libor is essentially a floating rate. It keeps on changing with time. In simple terms, Libor is that the average rate of interest, which is charged when banks in London’s interbank market borrow funds (unsecured variety) from one another. There exist different Libor rates for different currencies. Libor was adopted by the world banking system in the mid-1980s to act as a standard for interbank loans, which were short-term. At present, Libor rates have received international recognition. They are used for pricing different types of corporate loans as well as consumer loans, debt securities and debt instruments worldwide. For instance, Libor is considered as a reference rate of interest for a wide array of US interest-only loans. British Bankers’ Association (BBA) fixes Libor rates each UK business day. When BBA fixes Libor rates, which have US dollar denominations, it polls a panel of reputable banks (with high volume), which take part in London wholesale money market. This is done to find out that rate at which these selected banks lend their Eurodollars for specified maturities. BBA calculates central tendency figures, specifically interquartile mean for all such maturities. It then publishes those calculated figures at around 11:30 a.m. GMT. LIBOR rates are listed each morning in the FT and other newspapers.
The British Bankers’ Association calculates LIBOR in an open manner each business day.
LIBOR rates are generally released around 11 am London time. Many LIBOR rates exist, for various multiple short-term periods in a number of currencies. For example, each day LIBOR rates are released, there is a 1 week Japanese Yen LIBOR rate, a 1 month US dollar LIBOR rate, and 6 month Euro LIBOR rate. LIBOR is the primary benchmark for interest rates around the world. Interest rate contracts traded on many exchanges around the world, such as the Chicago Board of Trade, settle based on LIBOR. LIBOR affects consumers, too, as LIBOR is often used as a benchmark for ARMs and other credit products.
Libor stands for London interbank offered rate. It refers to any of a number of short-term indicative interest rates compiled by the British Bankers Association (BBA) at 11:00 AM London time each business day. For a given currency and maturity, Libor represents the simple interest rate at which banks are willing to lend Eurocurrency (i.e. Eurodollars, Euroyen, etc.) to each other. Because the loans are structured as deposits, Libor is called a deposit rate. As a practical matter, it is the interest rate at which the most highly-rated banks can borrow.
Libor is quoted for very short-term and monthly maturities out to a year for the world’s major currencies. GBP Libor is quoted for a cash loan on an actual/365 basis. For all other currencies, it is quoted for a spot loan on an actual/360 basis. Spot is defined as two business days (two “target” days for the euro). Rates are available from Telerate news service page 3750. Libor rates are widely used as underlying interest rates for derivative contracts.
Use of the term “Libor” can be confusing. Usually, it refers to the indicative rates compiled by the BBA. It may also refer to any rate offered by one bank to another on a deposit. To avoid confusion, people may speak of BBA Libor when referring to the BBA’s indicative rates.
As with most markets, the money markets have bid-offer spreads. Libor rates are offered rates. Libid rates are bid rates. Libid stands for London interbank bid rate. These are the rates banks bid for deposits. As a practical matter, Libid is a rate other banks can expect to receive if they deposit excess cash. The BBA does not compile indicative Libid rates.
Limean is the mid-market rate—the average of Libor and Libid.
Euribor stands for Euro interbank offered rate. These interest rates for the Euro are compiled by the European Banking Federation (FBE—Fédération Bancaire de l’Union Européenne) and are released at 11:00 AM Brussels time, each business day. Rates are quoted for one week and monthly maturities out to a year. They are available on Telerate page 248. Euribor is more widely used than Euro Libor.
You should try and know how much the libor will be before you ever decide to take out the loan.
Me and my friend learned that the libor was something banks did with each other that involved loans and charging each other.
The company’s respected status within the consumer goods industry allowed it to finance its debts at rates barely above LIBOR.
London Interbank Offered Rate
LIBOR curve
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This glossary post was last updated: 5th November, 2021 | 0 Views.