London Inter Bank Offered Rate (LIBOR)
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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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