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LIBOR (London Inter-Bank Offered Rate)
Definition: In short, this is the overnight lending rate banks charge when lending to one another. The rate governs loans with short-term maturities, i.e. overnight to one full year and is applicable to the international interbank market. Countries that rely on the LIBOR for a reference rate include the United Kingdom, United States, Canada, and Switzerland.
Additional Info: The rate is officially ‘fixed’ once a day by a group of large London banks (the BBA, British Bankers' Association) however the LIBOR actually fluctuates throughout the day. It is derived from an average of the world's most creditworthy banks' overnight deposit rates. Typically, banks with liquidity requirements seek these short-term loans from those with a liquidity surplus. Loan transactions are completed very quickly. The LIBOR can also be used as a reference point for multinational corporations. These businesses can be offered credit at an annual rate of LIBOR, plus several points. Related Terms:
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