CORPORATE FINANCE: London Interbank Offered Rate (LIBOR)

CORPORATE FINANCE
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(January 19, 2012)
Outline
Libor (London Interbank Offered Rate)
The effect of Libor on a firm Borrowing Costs
Corporate Finance
Libor (London Interbank Offered Rate)
It refers to the rate of interest at which big banks lend from one another. It is a broadly quoted benchmark for short-lived interest rates. It has widely become most banks’ source to base the pricing of their variable commodities a head of the initial bank rate. Swaps in interest rates are used. Hence, any financial institution which obtains funds on Libor and then suddenly requires certainty on the rate of interest they will pay. It establishes the rate at which banks are willing to lend each other over a given period. It is the most important measure as the three-month sterling rate. Initially, the rate was set at 0.1 to 0.2 percent above the rate of banks. Currently, it has increased...