What is LIBOR rates & how do the rate of interest derived based on LIBOR?
The British Bankers’ Association (BBA) LIBOR is the primary benchmark used by banks, securities houses and investors to fix the cost of borrowing in the money, derivatives and capital markets around the world. BBA LIBOR fixing evolved in the early 1980’s with the growth of syndicated lending and early developments in the derivatives markets. Since then it has assumed an increasing importance as well over 20% of all international bank lending and more than 30% of all FX transactions take place in London. BBA LIBOR is now used to calculate the interest rates applying to a wide range of contracts including OTC instruments such as swaps, loan agreements, FRNs, FRAs and Exchange Traded Short Term Interest Rate contracts traded on LIFFE, CME and DTB amongst others. BBA LIBOR is fixed for the following currencies: GBP, CAD, EUR, USD, AUD, YEN, CHF, NZD, SEK and DKK. All currencies are fixed on a spot basis on each London Business Day apart from Sterling, which is fixed for same day value. EUR
