Eh ehhmmm em em ehh em, help needed!

[Chartsy]

Re: LIBOR etc
Quote:
Originally Posted by Chartsy
Quote:
Originally Posted by arabianights
Quote:
Originally Posted by Chartsy
hey mate i figure you're they guy on the forums when it comes to interest rates! basically i don't really understand the LIBOR, is it the rate which the london interbank market is offered to get a short term loan from wherever? like say the EURO libor is 2%, does that mean that for the london ib market to take a loan out from european banks they pay 2% a year?

thanks

Basically you've got this very wrong it'll take me quite a while to correct it - I think a better idea would be to look here: http://www.bbalibor.com/bba/jsp/polopoly.jsp?d=1625

So the LIBOR is the rate at which banks in the london ib market lend unsecured loands to each other?

and the EURIBOR is the rate at which banks in the european ib market lend to each other?

No. LIBOR is set by different panels of banks (although of course all members of BBA) on various currencies (including EUR).

EURIBOR is set only for euros, and by a wider panel of banks in various euro countries. It also has a slightly different question to the LIBOR question.

If you like quote this exchange and start a thread in the Money Markets subforum - there's some insightful people there who'll pop up and give more verbose assistance, and maybe mention some interesting things





i'm confused, the bold typing is arabiannights dealing with such ignorance, i still don't get LIBOR EURIBOR !

 

[Martinghoul]

What's your specific question? I can't make sense of all this quote/un-quote stuff...

 

[Chartsy]

I thought that LIBOR was the rate at which banks in the london ib market lend to each other. this is wrong and i don't understand why.

 

[MrGecko]

examples:

3m LIBOR = the rate on US Dollars for 3m as quoted by the panel banks in London
3m EURIBOR = the rate on EURO's for 3m as quoted by the panel banks*
3m SHORT STERLING = the rate on GBP for 3m as quoted by the panel banks

Basically you are mistaking the Currency for the location of the quotes.

* EURIBOR is not actually published by the BBA, and the questions the contributing banks ask are slightly different (and they ask more people).

 

[Martinghoul]

I thought that LIBOR was the rate at which banks in the london ib market lend to each other. this is wrong and i don't understand why.

MrG beat me to it... His answer should clear up any and all confusions, I hope.

 

[Chartsy]

examples:

3m LIBOR = the rate on US Dollars for 3m as quoted by the panel banks in London
3m EURIBOR = the rate on EURO's for 3m as quoted by the panel banks*
3m SHORT STERLING = the rate on GBP for 3m as quoted by the panel banks

Basically you are mistaking the Currency for the location of the quotes.

* EURIBOR is not actually published by the BBA, and the questions the contributing banks ask are slightly different (and they ask more people).

so the LIBOR is the rate for us dollars, as quoted by panel banks in LONDON, but EURIBOR is the rate on lending of euros as quoted by panel banks everywhere?

 

[MrGecko]

so the LIBOR is the rate for us dollars, as quoted by panel banks in LONDON, but EURIBOR is the rate on lending of euros as quoted by panel banks everywhere?

Well technically LIBOR can be quoted by London AND European Banks, and EURIBOR can be quoted by London AND US banks... but I think this is excessively pedantic.

Perhaps you could outline the context of which you are considering these rates??? In March/April of '08, the definitions mattered as we saw LIBOR manipulation (and a subsequent dislocation) of LIBOR/EURIBOR/NYFR, and if you were trading rates at the time it mattered. Right now I don't think it does.

 

[arabianights]

LIBOR isn't just $. However if someone talks about LIBOR without any other clairifcation they're talking about $.

 

[Chartsy]

....right. still a bit confuzzled now because i didn't realise that LIBOR could be asked from banks in US as thats not really the london ib market is it! anyway i apologise for my ignorance, any books on the dense subject of this sort of thing?

 

[Chartsy]

lol so to clarify; LIBOR is the rate at which you can borrow a particular currency at, what i'm unsure about iss; is the LIBOR rate for each currency taken from the london interbank market, or from other panel banks in other countries?
and EURIBOR is taken from european interbank market as the rate at which euros can be offered/bought at ?

 

[MrGecko]

lol so to clarify; LIBOR is the rate at which you can borrow a particular currency at, what i'm unsure about iss; is the LIBOR rate for each currency taken from the london interbank market, or from other panel banks in other countries?
and EURIBOR is taken from european interbank market as the rate at which euros can be offered/bought at ?

Ok here goes nothing

"IBOR" stands for Inter Bank Offered Rate - the rate that a currency is offered at (i.e. you can borrow) for whaterver period (1 week, 1 month, 3 month etc..)

L - IBOR = the rate that you can borrow US$'s from a bank (if you are AAA rated I think). It is published by the BBA who ask a set of panel banks from all over the world what their particular quote is (they ask during the London session - hint). LIBOR is important because alot of derivatives are settled against it (e.g. EuroDollar futures, the STIR kind, plus swaps etc).

EU - IBOR is the rate at which you can borrow Euro's from a bank. It is published by a different body - ... uhh, I can't remember. Anyway, I think specifically it is the average rate at which panel banks would be willing to lend at, which is slightly different to the LIBOR question. Also there are more contributing banks. It is also important because there are derivatives settled agaisnt EURIBOR too.

Added to that, you also have Short-Sterling and EuroSwiss, EuroYen and so on, for currencies Sterling, Swissy and Yen respectively.

When people talk about LIBOR (US Dollars), EuroYen (JPY), Short Sterling (GBP) etc... the simplest way to get a grip of what they are talking about is to think of it as how much interest you have to pay of you want to borrow some the currency in question. So, for example, "# month EURIBOR ticked up" means you pay moire interest on borrowing Euro's for 3 months today that you would have done yesterday.

In all liklihood that's all you need to know. Probably more.

P.S. When Dave goes on about Euro-LIBOR, Sterling-LIBOR, he is referring to the quotes from the BBA only; so, for example, Euro-LIBOR is the average rate at which the BBA panel banks can borrow Euro's, just like L-IBOR is the average rate at which BBA panel can borrow USD's. So Euro-LIBOR isn;t the same as EURIBOR - you've got different groups trying to quote a sort of index for the same thing (like the DOW isnt the same as the SP500)... so, another example is the NYFR (New York Funding Rate), which tries to measure the same thing that LIBOR does but during the New York session rather than during the London session.

Phew, hope that helps.

 

[Chartsy]

thanks!
but wait!
if you can get quotes for sterling-Libor, then what is short sterling? surely they are the same thing?
isn't EuroYen then same as Yen-Libor?

 

[MrGecko]

yep

 

[Chartsy]

ok, sweet

 

[bangkoker]

Definetely learnt something there. Thanks