Impact of LIBOR on other economies

1. The LIBOR Game, Global
Financial Markets and India
Presented By-
Ketty Ghujan Krishnaja
Manpreet Singh Grewal
Prashant Ranjan
Yasha Singh
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2. 1. What is London interbank offered rate? How
did things go wrong? Despite the LIBOR Fine
imposed by regulators over 20 banks & FLs in
August 2012, the tradition to misplay the
markets still remains, as seen with RoboBank’s
conduct. What is going on ?
• LIBOR (the London Inter-Bank Offered Rate) is
intended to reflect the average rate at which banks
can obtain unsecured funding in the London money
market for a given period and a given currency.
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3. • Mr. Robson was constantly involved in doing illegal
activities and conspiracy. Due to this bad intensions
things went wrong in Robo Bank.
• In LIBOR panel banks are selected by CE Benchmark
Administration (IBA) according to their market
volume, reputation.
• To maintain their market volume many banks are
involved in misplay. So that they can earn more
profits.
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4. 2.Given the LIBOR Game being played between
the Brokers and Large Financial Institutions/
Banks, what is expected impact on:
a) Global Capital Market
b) The Global Currencies (US$; Euro& INR)
c) Mortgage Market
d) Inflation (Globally & in India)
e) Student Loans
f) Commodities (Agro Goods; Crude Oil & Gold)
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5. • Global Capital Market-
• LIBOR game will have negative impact on capital
market because LIBOR is considered as a reference
point for all financial instruments.
• The Global Currencies (US$; Euro& INR)-
• It will have an affect on currency market also. As,
LIBOR rates are quoted in 10 currencies therefore it
would affect the demand and supply of currencies.
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6. • Mortgage Market-
• It will affect because LIBOR helps in fixing interest
rates for the mortgage market. It gives idea at what
rate could borrower borrows fund.
• Inflation (Globally & in India)-
• LIBOR rates will influence the interest rate of
economy. Hence, it will influence the inflation which
is inversely related to interest rates.
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7. • Student Loans-
• As LIBOR increases loans will be given at higher rate
and vice-versa. So, there is a positive relation
between LIBOR rates and student loans.
• Commodities (Agro Goods; Crude Oil & Gold)-
• LIBOR will influence the rate of return which is fixed
in reference to LIBOR rate.
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8. 3. How does this impact the Indian Capital
Markets?
• It will hamper the Indian capital market.
• The Libor is widely used as a reference rate / bench
mark for many financial instruments in both financial
markets and commercial fields.
• MIBOR is fixed in reference to LIBOR rate.
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9. 4. The US$ and EURO have weakened on
account of Fiscal Debt Crisis in Europe &
Double Dip Recession announced by the US
Government. This ought have had a positive
impact on the INR giving a push up
(appreciation). However the INR has observed
a substantial Fall(Weakening) in September
2011 and May-Sep 2012 of over INR 10-15
against a Dollar and INR 6-8 against a EURO. Is
there any role of the LIBOR in this and what are
other possible reasons.
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10. • Yes, there was a role of LIBOR in this.
• LIBOR affects mortgage market, currency market,
and another credit products. Since LIBOR rates will
affect the global currency market it will affect the
appreciation and depreciation of Indian Rupee.
• And the other possible reasons are slowing growth,
high inflation and widening fiscal and current
account gaps.
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