An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived from a filtered average of the world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and one full year.

The LIBOR is the world's most widely used benchmark for short-term interest rates. It's important because it is the rate at which the world's most preferred borrowers are able to borrow money. It is also the rate upon which rates for less preferred borrowers are based. For example, a multinational corporation with a very good credit rating may be able to borrow money for one year at LIBOR plus 4 or 5 points.

Countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland and, of course, England. For more on LIBOR, read An Introduction to LIBOR.

Bond Valuation Basics

Related Articles
  1. Investing

    The Importance Of LIBOR In Financial Markets

    What is LIBOR and why are its interest rates so important to the financial markets?
  2. Personal Finance

    An Introduction To LIBOR

    This influential rate is published daily in Britain, and felt all around the world.
  3. Trading

    Will OIS Replace LIBOR?

    LIBOR manipulation by large banks during the financial crisis has raised serious doubts about the interest rate's reliability. Now, the question is whether to reform the rate or replace it with ...
  4. Investing

    Why BBA LIBOR Was Replaced By ICE LIBOR

    We track the reason behind the change in LIBOR's prefix from BBA to ICE.
  5. Investing

    The Insiders Who Fix Rates for Gold, Currencies And Libor

    The system by which benchmark rates are fixed for interest rates, currencies and gold is archaic - and, many would argue, deeply flawed.
  6. Financial Advisor

    How Tom Hayes Fixed LiborĀ 

    For such an important number, the Libor rate was an easy fix. How did Tom Hayes, the main trader involved in the rate fixing scandal, do it?
  7. Investing

    What is the OIS LIBOR Spread And What Is It For?

    When the LIBOR-OIS spread rises significantly, it represents the worry that banks might not be able to pay down even their short-term debt obligations.
  8. Small Business

    The LIBOR Scandal

    Barclays and other banks are alleged to have submitted artificially low LIBOR rates between 2007 and 2009.
  9. Investing

    5 Signs Of A Credit Crisis

    These indicators can illuminate the depth and severity of problems in the credit markets.
Frequently Asked Questions
  1. Is There a Difference Between the Equity Market and the Stock Market?

    Equities and stocks refer to the same thing.
  2. What Happens to a Company's Stock When it Goes Bankrupt?

    Shareholders may be entitled to a portion of the liquidated assets in the wake of a bankrutpcy, but the stock will be worthless.
  3. What are Advantages and Disadvantages of Preference Shares?

    Preference shares have advantages and disadvantages for both investors and issuing companies.
  4. When am I eligible to receive Social Security benefits?

    Understand when you are eligible to begin collecting Social Security retirement benefits and how retiring at different ages ...
Trading Center