LIBOR
From FXPedia
LIBOR stands for the London Inter-bank Offered Rate – it is the average of the interest rates offered on an overnight, unsecured loan basis to other banks in the London banking system. Conversely, LIBID is the London Inter-bank Bid and represents the rate at which institutions are willing to accept deposits. For this reason, the LIBOR is always greater than the LIBID.
Each business day at 11:00 AM London time, the British Banker’s Association (BBA) releases the current overnight LIBOR rate. The BBA also produces projected LIBOR rates with maturities for 3-Month, 6-Month, and 1-Year deposits.
London is unquestionably the preeminent interest rate market in the world and this has led to the LIBOR becoming the standard benchmark for setting other interest rates. Financial derivative products such as forward rate agreements (FRAs), floating rate notes, and variable rate mortgages are often priced relative to the LIBOR.
LIBOR is also used as a reference rate for the major currencies including the U.S., Canadian, Australian, and New Zealand dollars, the Pound Sterling, the Euro, the Swiss Franc, the Yen, the Swedish Krona, and the Danish Krone. Eurodollar futures contracts are determined by the 3-Month LIBOR interest rate and the Swiss National Bank uses the 3-Month LIBOR to determine the setting of interest rates for the Swiss financial system.
Next to the overnight LIBOR, the 3-Month LIBOR is probably the most examined. It usually trades as a slight premium of one to two tenths of a percent over what the market believe the rate will be in three months. This provides observes with the ability to adjust their strategies to best positions themselves for the next few months.
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