London Interbank Offered Rate (LIBOR) is the most popular interest rate benchmark that financial institutions use globally. And this rate is used by banks for all their inter-bank short-term loan arrangements. To know more about it, click on the link given below: https://efinancemanagement.com/investment-decisions/london-interbank-offered-rate

1. By:-
eFinanceManagement.com
https://efinancemanagement.com/investment-decisions/london-interbank-offered-rate
London Interbank Offered Rate

2. 1. Introduction
2. ICE LIBOR
3. How it Works?
4. LIBOR Calculation
5. Future of LIBOR
6. Reference
Content

3. London Interbank Offered Rate (LIBOR) is the most popular interest rate benchmark that financial institutions use
globally. And this rate is used by banks for all their inter-bank short-term loan arrangements.
On any given day, there could be 35 unique LIBOR rates. However, the most popular is the three-month U.S. dollar rate.
We can also call the three-month LIBOR rate as current LIBOR rate.
Introduction

4. Prior to the 2008 crisis, the LIBOR was called BBA (British Bankers Association) LIBOR. Following the 2008
controversies, ICE took the responsibility to calculate the LIBOR rate. Thus, in order to give a fresh name and make it
different from earlier, it got a new name, ICE (Intercontinental Exchange) LIBOR.
ICE follows a slightly different process to calculate the LIBOR from BBA. ICE reduced the reference banks to less than
20 from 200.
ICE LIBOR

5. The ICE (Intercontinental Exchange) calculates the LIBOR rates. They do this by surveying the panel of banks on the
rates they are comfortable with borrowing money. The association then averages those numbers to come up with LIBOR
rates.
Generally, a bank fixes the interest rate on consumer loans a few points more than the LIBOR rate.
Along with serving as the benchmark, the LIBOR also serves as a gauge of the strength of the economy.
How it Works?

6. LIBOR rates could be for a day to up to 12 months (seven maturities). Generally, these rates get listed in the morning
around 11 am London time. These rates are quoted in five currencies – US Dollar (USD), Euro (EUR), Japanese Yen
(JPY), Swiss Franc (CHF), and Pound Sterling (GBP)
The seven maturities for which the LIBOR rate is set are overnight/spot next, one week, one month, two months, three
months, six months, and twelve months.
The process to set the rates is as follows:
• The committee asks the panel banks the rates at which they will be comfortable giving money to other financial
institutions.
• The rates from the panel are then listed in the top-down order.
• Now, the committee removes the extreme quotes, usually the top and bottom 25%. The committee averages the
remaining rates and rounds them to the five decimal places.
LIBOR Calculation

7. Despite the efforts from ICE to restore confidence in LIBOR, the future of this benchmark rate is uncertain. As per the
Federal Reserve and regulators in the U.K., London Interbank Offered Rate will be ceasing to exist by June 2023. The
Secured Overnight Financing Rate (SOFR) would replace it.
Future of LIBOR

8. Reference
To know more about it, click on the link given below:
https://efinancemanagement.com/investment-decisions/london-interbank-offered-rate