LIBOR

1) LIBOR is a global, benchmark interest rate

2) It’s full form is London Interbank Offered Rate “London” - The idea behind LIBOR was formulated by the British Bankers Association (BBA) in the 1980’s “Interbank Offered rate” – Every morning, a group of select global banks estimate the interest rate they would charge each other for different short term periods. The Intercontinental Exchange (ICE) collects all the rates, discards outliers and takes an average of the rest to come up with the final rate

3) LIBOR serves as a benchmark for a variety of debt instruments, ranging from mortgages to Credit Card debt to student loans.

4) If you are quoted a loan which says that you must pay an interest rate equal to “120 basis points over LIBOR”, it means that your interest rate is Libor rate + 1.2 % So if on day x, the Libor rate is 1.6%, your interest rate would be 2.8%

5) Each day, there are 35 different quoted LIBOR rates of different maturity periods with the “3 month” LIBOR rate being the most common of them. LIBOR rates are estimated to be tied to trillion of dollars’ worth of loans.

1 Month(White) vs 3 Month(Orange) vs 6 Month(Blue) LIBOR rates. Source: Bloomberg as of 04/05/18

Some of the banks that are members of the LIBOR rate setting committee

1)Lloyds Bank plc

2)MUFG Bank Ltd

3)Barclays Bank plc

4)Mizuho Bank Ltd

5)Citibank N.A