What Makes Historical LIBOR Rates Significant?

Financial institutions in London had an increasing demand for a benchmark for lending rates at the beginning of the nineteen eighties. This benchmark was specially needed to compute prices for financial items such as interest swaps and options. The British Bankers’ Association (BBA) took responsibility in 1984 which then led to the dissemination of the first LIBOR interest rates. Historical LIBOR rates have been useful references or sources for LIBOR.

Today LIBOR is acknowledged worldwide as the most significant benchmark for short-term interest rates. It is also used in the professional financial markets as base rates for a huge number of financial items like the options, swaps and futures. In banks, they use LIBOR interest rates as the basis for deciding on savings, interest rates for loans and mortgages. Since LIBOR is widely accepted as the base rate for other items, historical LIBOR rates are now constantly being tracked by numerous professionals, individuals and businesses all over the world.

LIBOR is known as an average interest rate where carefully selected banks undergo a process of lending funds to each other. These selected banks are recognized as “panel banks”. Each year the British Bankers’ Association together with the Foreign Exchange and Money Markets Committee performs the process of selecting banks. A panel for each currency is made at which can be composed of eight to sixteen banks that are chosen to be delegates for the London money market. The basis for a bank’s candidacy to be in the panel is its reputation, market volume and understanding of the currency.

When LIBOR was just starting, it was only published for three currencies which are the pound, Japanese yen and US dollar. As time passed by the currencies increased to a maximum of 16 where some of them combined with the Euro on 2000.

Since there are fifteen various maturity levels, then there are also fifteen various LIBOR rates. Fifteen Maturity levels wasn’t always the case especially in 1998 where the shortest maturity was just one month. A one week rate was then added in the same year and it was only in 2001 when the two-week and overnight LIBOR rates were established.

As you come to understand how LIBOR works then you will know how significant Historical LIBOR rates are. Though these rates are positioned in the United Kingdom, a lot of consumers still require comprehension on the mechanics of LIBOR especially that it is accepted as a basis for many kinds of consumer loans.

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