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Libor

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Libor

  1. 1. <ul><ul><li>Average rate at which banks loan to one another </li></ul></ul>
  2. 3. <ul><li>It is a trimmed average of inter-bank deposit rates offered by designated contributor banks </li></ul><ul><li>maturities ranging from overnight to one year </li></ul><ul><li>LIBOR is calculated for 10 currencies </li></ul><ul><li>  US dollar, Euro, Japanese Yen, Swiss Franc, Canadian dollar, Australian Dollar, Swedish Krona, Danish Krone and New Zealand dollar. </li></ul>
  3. 4. <ul><li>Not necessary </li></ul><ul><li>Submitted by a panel with high credit ranking </li></ul><ul><li>Bank with less standing may have to pay higher than published rate. </li></ul>
  4. 5. <ul><li>LIBOR rates are widely used as a reference rate for financial instruments such as: </li></ul><ul><li>Forward rate agreements </li></ul><ul><li>short term interest rate future contracts </li></ul><ul><li>Interest rate swaps </li></ul><ul><li>Floating rate notes </li></ul><ul><li>Syndicated loans </li></ul><ul><li>Variable rate mortgages </li></ul><ul><li>currencies, especially the US $ </li></ul><ul><li>They thus provide the basis for some of the world's most liquid and active interest rate markets. </li></ul>
  5. 6. BANK “A” BANK “B”
  6. 7. <ul><li>This is the rate bid by banks on eurocurrecy deposits(i.e. the rate at which a bank is willing to borrow from other banks) </li></ul><ul><li>Rate to which many Eurodollar loans and deposits are tied. </li></ul><ul><li>The bid rate that a Euromarket bank is willing to pay to attract a deposit from another Euromarket bank in London. </li></ul><ul><li>It is &quot;the opposite&quot; of the LIBOR (an offered, hence &quot;ask&quot; rate). </li></ul>
  7. 8. <ul><li>The interest rate that commercial banks charge their most credit-worthy customers. </li></ul><ul><li>Generally a bank's best customers consist of large corporations. </li></ul><ul><li>Even though banks frequently charge more and sometimes less than the quoted prime rate, it is a benchmark against which other rates are measured and often keyed. </li></ul>

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