Oct 072018

The London InterBank Offered Rate (Libor) is the usual benchmark rate of interest used when financial institutions lend money to each other in the wholesale or interbank money markets. LIBID is the equivalent bid rate to LIBOR – i.e., the rate at which the banks earn interest on deposits with other banks. The wholesale market’s main purpose is to allow banks to adjust their liquidity position quickly, covering shortages by borrowing from banks with surpluses and reducing the need for them to hold large amounts of liquid assets. It is not open to the retail market. Unlike the central bank base rates (to which deposit and borrowing rates for ordinary individuals are normally geared), which change only rarely, Libor moves constantly (it is officially fixed at 11am every day). This makes it a far better measure of short-term interest rates, and as a result, it has become the rate in relation to which other floating rates of interest are set. Rates on other loans and floating rate bonds are often quoted as being a number of basis points (a hundred basis points is equal to 1%) above Libor.

Today I spent the whole afternoon in meetings, then came out and penned a couple of descriptions. Phew. Time for a run now.

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I am working hard to add examples and definitions. But can you add some context or a better definition on ‘LIBOR‘? If so, please leave your comments below.

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