London InterBank Offered Rate (LIBOR)
LIBOR is the rate on dollar-denominated deposits, also know
as Eurodollars, traded between banks in London. The index is
quoted for one month, three months, six months as well as one-year
periods.
LIBOR is the base interest rate paid on deposits
between banks in the Eurodollar market. A Eurodollar is a dollar
deposited in a bank in a country where the currency is not the
dollar. The Eurodollar market has been around for over 40 years
and is a major component of the International financial market.
London is the center of the Euromarket in terms of volume.
The LIBOR rate quoted in the Wall Street Journal
is an average of rate quotes from five major banks. Bank of
America, Barclays, Bank of Tokyo, Deutsche Bank and Swiss Bank.
The most common quote for mortgages is the 6-month
quote. LIBOR's cost of money is a widely monitored international
interest rate indicator. LIBOR is currently being used by both
Fannie Mae and Freddie Mac as an index on the loans they purchase.
LIBOR is quoted daily in the Wall Street Journal's
Money Rates and compares most closely to the 1-Year Treasury
Security index.
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