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LIBOR |
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LIBOR
London Interbank Offer Rate The interest rate participating banks offer to other banks for loans on the London market. LIBOR is the most widely used benchmark for short term interest rates in the world, primarily because most of the world's largest borrowers borrow money on the London market. Because it is so prominent, it is often used in other transactions, such as swaps. For example, an interest rate swaps may give the floating rate as "LIBOR +/- X base points." It is set each day by the British Bankers Association, which calculates it by averaging short term, inter-bank, deposit interest rates among the most creditworthy banks. See also: EURIBOR. LIBOR (pronounced “lie-bore”) London Interbank Offered Rate.The rate that European banks use to charge interest to each other on large loans.LIBOR is used as an index for many commercial loans in the United States,rather than a reference to the prime rate.Often quoted as something similar to “135 basis points over 1-year LIBOR,”so that if LIBOR on 1-year loans is currently at 5.66 percent,then the quoted loan rate for the customer will be 5.66 percent plus 1.35 percent,or 7.01 percent. London Interbank Offered Rate (LIBOR) What Does London Interbank Offered Rate (LIBOR) Mean? An interest rate at which banks borrow funds from other banks in the London interbank market; the LIBOR is fixed on a daily basis by the British Bankers' Association and derived from a filtered average of the world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and a full year. Investopedia explains London Interbank Offered Rate (LIBOR) Related Terms: How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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The LIBOR is normally seen as the benchmark against which banks and building societies set their standard variable rate for mortgages. BBA LIBOR serves as the primary daily benchmark used by banks, securities houses, and investors to fix the cost of borrowing money in the international money, derivatives, and capital markets around the world. Even though the LIBOR rates are fixed in the United Kingdom, American consumers need to understand how LIBOR works, since LIBOR is used as a benchmark in pricing of many types of consumer loans in the USA. |
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