London Interbank Offered Rate (LIBOR)

Definition

LIBOR is the average interest rate at which major global banks lend to one another in the international interbank market for short-term loans. It serves as a globally accepted key benchmark interest rate.

5 Must Know Facts For Your Next Test

1. LIBOR is calculated for five currencies: USD, EUR, GBP, JPY, and CHF.
2. It is published daily by the Intercontinental Exchange (ICE).
3. LIBOR rates are set for seven different maturities ranging from overnight to 12 months.
4. It influences interest rates on various financial products including mortgages, student loans, and bonds.
5. As of December 31, 2021, LIBOR began being phased out and replaced with alternative reference rates like SOFR.

Review Questions

• What are the five currencies for which LIBOR is calculated?
• Who publishes the daily LIBOR rates?
• Why is LIBOR important in determining interest rates on financial products?

Related terms

SOFR: The Secured Overnight Financing Rate (SOFR) is an alternative benchmark rate to LIBOR used primarily in the United States.

Interbank Market: A market where banks lend to and borrow from one another typically on a short-term basis.

Benchmark Interest Rate: A standard interest rate that other interest rates are pegged to or compared against.