Libor interest rate?

Question

what is the Libor rate of interest and how dos it compare to the bank of england rate's we hear so much about Re mortgages ect

Answer 1

It's the short term (overnight) Interest Rate charged by one commercial Bank for lending money to another.

The 'Base Rate' is a longer term rate set by the Bank of England (BoE) .. this is the MINIMUM Rate that the BoE will lend money to other Banks.

Usually the two rates are the same, however because LIBOR is set by the commercial banks (and not by BoE) they CAN become 'uncoupled' and this is what happened recently

When Banks stopped 'trusting' one another and refused to lend each other money at the base rate this resulted in a higher LIBOR rate.

When Joe Public discovered that the other Banks wouldn't lend money to Northern Rock (NR had to go to BoE for cash) they lost faith in NR and started to demand their money back .. (no surprise .. after all if the BANKS refuse to trust NR, why on earth should anyone they think Joe Public should trust them ???)

Answer 2

The bank rate is set, in the UK by the Bank of England or rather the Monetary Policy Committee. This is the headline rate and presumably how retail lending and borrowing is established.However the Inter bank lending, and borrowing, is established by the major banks. They agree a rate they will lend to each other, wholesale rates.LIBOR, London Interbank Offered Rate also has a Bid counterpart LIBID. There are also the Discount houses that buy debt from the Govt. (Treasury Bills) at a discount and sell on to the retail market, thus providing liquidity.Presumably if the Govt. was borrowing money through the gilt market they would have to base the price on the Bank rate, rather than LIBOR. I mean, if you were lendong money to me you wouldn,t have to charge the Bank Rate or LIBOR would you? Maybe the Bank rate is the RISK FREE lending/borrowing rate.We used to have MLR (minimum lending rate). And what about the REPO rate. A bond is a fixed interest instrument. As it has a fixed interest rate (coupon) if interest rates in general move up and down it follows that the price of the bond, which is not fixed, must move to compensate. The actual return on the bond is, therefore, not the coupon or bond rate, but the yield. The yield is calculated by the following formula. Y(ield)=C(oupon) divided by P(rice). Most bonds are redeemable (at par, or face value) and therefore they have what is known as redemption yields or yield to redemption. This takes into account the flat yield plus the capital gain or loss at redemption (stated as an annual yield). I notice you mentioned 3 month LIBOR. I think this is just due to the fact that commercial mortgages are adjusted quarterly, rather thn on a change of LIBOR. It wouldn't surprise me if you also have a LIBOR Future!! This is all a bit off the top of my head so it might not be 100% accurate (don't go dealing on the back of it)

Answer 3

It is in London Money market.London Inter Bank Offer Rate.It is the rate paid on inter bank deposits/borrowing rate.
The possible effect of Bank Rate is that if LIBOR rates are lower banks may not approach Bank of England.The complex relation between LIBOR and Bank Rate is the concern of Bank of England.

Answer 4

LIBOR London InterBank Offered Rate, is the base interest rate paid on deposits between banks in the Eurodollar market.

Answer 5

london interbank offered rate. similar to fed funds rate in the U.S., generally about 250 bp higher than fed funds.