LIBOR definitions
| Word backwards | ROBIL |
|---|---|
| Part of speech | The word "LIBOR" is an acronym, which stands for "London Interbank Offered Rate". It is a proper noun and refers to a specific interest rate benchmark used in financial markets. |
| Syllabic division | The syllable separation of the word LIBOR is Li-bor. |
| Plural | The plural of LIBOR is LIBORs. |
| Total letters | 5 |
| Vogais (2) | i,o |
| Consonants (5) | l,i,b,o,r |
LIBOR, which stands for London Interbank Offered Rate, is a benchmark interest rate at which banks lend to each other in the international interbank market for short-term loans. LIBOR serves as a key reference rate for various financial products such as adjustable-rate mortgages, student loans, credit cards, and derivatives.
LIBOR is calculated on a daily basis for five different currencies (USD, EUR, GBP, JPY, and CHF) and seven different maturities, ranging from overnight to 12 months. The rate is determined based on submissions from a panel of banks, which report the interest rates at which they could borrow funds from other banks.
The Transition Away from LIBOR
Despite being a widely used benchmark for decades, LIBOR is being phased out globally and is expected to be fully replaced by alternate reference rates by the end of 2021. The transition away from LIBOR was initiated due to instances of manipulation and declining transaction volumes in the interbank market.
Alternative Reference Rates
Regulators are promoting the adoption of alternative reference rates such as the Secured Overnight Financing Rate (SOFR) in the United States and the Euro Short-Term Rate (€STR) in the Eurozone. These rates are based on actual transactions in more liquid markets, making them more reliable and transparent compared to LIBOR.
Market participants are encouraged to update their existing contracts and financial products to replace LIBOR with the new reference rates to ensure a smooth transition and avoid any disruptions in the financial markets. The migration from LIBOR to alternative rates is a significant undertaking that involves coordination among financial institutions, regulators, and industry stakeholders.
LIBOR Examples
- The bank uses LIBOR as a benchmark for determining interest rates.
- Many financial institutions rely on LIBOR as an indicator of market conditions.
- The LIBOR rate is used in calculating the cost of borrowing for many consumers.
- Investors use changes in the LIBOR rate to make decisions about their portfolios.
- LIBOR plays a crucial role in the global financial system.
- Regulators closely monitor the integrity of the LIBOR benchmark.
- Banks submit their estimates of borrowing costs to help calculate the LIBOR rate.
- Some financial products are directly tied to the LIBOR rate.
- The manipulation of LIBOR rates led to scandals in the banking industry.
- The transition away from LIBOR to alternative benchmarks is a major undertaking for financial markets.