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Simple English definitions for legal terms
London Interbank Offered Rate
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A quick definition of London Interbank Offered Rate:
London Interbank Offered Rate (LIBOR) is a daily report that shows the interest rates that big banks charge each other for short-term loans. It is used as a reference for many financial contracts and investments. The rates are calculated for different time periods, up to one year. LIBOR is important because it affects the cost of borrowing money for businesses and individuals.
A more thorough explanation:
The London Interbank Offered Rate (LIBOR) is a daily compilation of the interest rates that major international banks charge each other for large-volume, short-term loans of Eurodollars. These rates are calculated out to one year and are used as the underlying interest rates for derivative contracts in currencies other than the euro.
For example, if a bank in the United States wants to offer a loan in Japanese yen, they may use the LIBOR rate as a benchmark for determining the interest rate on that loan. The LIBOR rate is also used in the pricing of various financial products, such as adjustable-rate mortgages and credit cards.
The LIBOR rate is determined by a panel of banks that report their borrowing costs to the British Bankers Association. The rates are then averaged to create the daily LIBOR rate.