LIBOR Definition. LIBOR, or the London Inter-Bank Offered Rate, are daily reference interest rates in London that member banks use to set rates to one another on wholesale money market Eurodollar loans. LIBOR is the most widely used benchmark or reference rate for short-term interest rates worldwide and are frequently used as the base for resetting rates on floating-rate securities like adjustable mortgages (ARMs). In 1984, banking officials in London noted that an increasing number of member banks were trading in a host of new securities, including forex options, forward rate agreements, and interest rate swaps, each of which involved intricate pricing models. In order to establish common standards for the interest rate assumptions, the British Bankers Association (BBA) formed a working group for this purpose. Official rate setting commenced in 1986. The BBA’s membership is international in scope, with more than sixty nations represented among its 223 members and 37 associated professional firms, as of 2008.
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