What is Libor?

Libor is the acronym in English for London InterBank Offered Rate. The Libor rate is a interest rate Interbank that appeared in the international financial market in 86. It arose as a result of the need to establish a reference interest rate for loans between banks.

The Libor rate was published for the first time on January 1, 1986. Since then it is published every day by the British Bankers Association, BBA for its acronym in English.

Currencies and calculation of the Libor rate

The Libor rate is published for five foreign exchange. The dollar, the euro, the pound sterling, the yen and the Swiss franc. It is calculated by collecting the interest rates at which it is expected to be able to obtain a loan significant. From there the top and bottom 25% are removed. From the remaining results, the average resulting in the Libor rate is calculated.

Operations in which the Libor rate is used

The libor rate is the reference rate for various operations and financial instruments, among which the following stand out.

  • Short-term future interest contracts.
  • Swaps de interés.
  • Inflation swaps.
  • Equity bonds.
  • Syndicated credits.
  • Variable interest mortgages.
  • Coins
  • Forwards.

Banks that use the Libor rate

The Libor rate is a set of interest rates with seven maturities different that serves, as we have commented, as a reference rate for loan operations between banks.

Banks that carry out financial operations taking the Libor rate as a reference are selected annually from those financial entities that are considered key for each currency for which the Libor rate is published. For each of the five currencies or currencies for which the Libor rate is published, between eight and sixteen banks are selected annually.

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