Finance and capital markets
- Banking 1
- Banking 2: A bank's income statement
- Banking 3: Fractional reserve banking
- Banking 4: Multiplier effect and the money supply
- Banking 5: Introduction to bank notes
- Banking 6: Bank notes and checks
- Banking 7: Giving out loans without giving out gold
- Banking 8: Reserve ratios
- Banking 9: More on reserve ratios (bad sound)
- Banking 10: Introduction to leverage (bad sound)
- Banking 11: A reserve bank
- Banking 12: Treasuries (government debt)
- Banking 13: Open market operations
- Banking 14: Fed funds rate
- Banking 15: More on the Fed funds rate
- Banking 16: Why target rates vs. money supply
- Banking 17: What happened to the gold?
- Banking 18: Big picture discussion
- The discount rate
- Repurchase agreements (repo transactions)
- Federal Reserve balance sheet
- Fractional Reserve banking commentary 1
- FRB commentary 2: Deposit insurance
- FRB commentary 3: Big picture
London InterBank Offer Rate. Created by Sal Khan.
Want to join the conversation?
- why is LIBOR used as a benchmark rate(3 votes)
- England used to be the greatest industrial super power of the world and this rate is going on for a long time. Plus, London still has today a very powerful financial industry.(7 votes)
- Why is LIBOR calculated daily?(5 votes)
- There are millions and millions of loans and derivative transactions which have a an interest rate that is based on Libor which need to be periodically reset.
For example , suppose I take a loan on 31 December for ten years in US Dollars where the intrest rate is set at 3month Libor + 5%. This means for the next ten years the lender need to know what Libor is on 31 March, 30th June , 30th September, 31 December in order to determine the exact interest rate that I will pay for each three(3 votes)
- Hmm, I've looked onto LIBOR over the internet, and I've found things like HIBOR, SIBOR, TIBOR... The latter 3 are from Asia, so does this mean LIBOR doesn't affect much of the Asian countries?(3 votes)
- LIBOR does affect asian countries; but things like HIBOR, SIBOR, TIBOR, etc... have to do with internal matters within their respective economies. Whereas LIBOR, and to some extent Euribor, deal more with international lending, etc...
For instance, a Hong Kong bank lending to a Hong Kong corp will use HIBOR, where a Singapore bank lending to a Japanese corporation would likely use LIBOR(4 votes)
- thank you very much for the brief on LIBOR. i want to you to explain the basis points and when it is said is LIBOR minus one LIBOR plus 1. please i want a total explanation why these words are used and what they represent and the implication on accounting(3 votes)
- a basis point is a percent of a percent...so if libor is 2% and we add 5 basis points the rate would be 2.05%(4 votes)
- What about euribor?
is it calculated the same way?(2 votes)
- Yes. Euribor is just the average rate at which banks lend Euro's between themselves. There are many others as well. I believe LIBOR is calculated for about 10 different currencies.(1 vote)
- what is the difference in the process of calculation of LIBOR and BBSW ?(1 vote)
- When at2:20it's explained that the loan given from B is coming directly form the Bank-B cash reserves, isn't it wrong according to the "fractional reserve priciple" on which banks work?(1 vote)
- This mistake doesn't make the example more conrete, it just makes it wrong.(1 vote)
- After watching the Banking series of videos, I am wondering what is the main difference between LIBOR and FED Funds Rate, I understand the FED rate is for the U.S.. Does this mean that U.S. banks would use LIBOR rates when exchanging money with international banks and the FED Funds Rate between U.S. banks? Also, is their a numerical difference between the LIBOR and Fed Funds Rate, and banks can choose whichever one is lower?(1 vote)
- LIBOR is the average rate offered by the largest banks in London normally when loaning to smaller banks, while the Federal Funds Rate is the rate US banks use to loan to each other. LIBOR tends to be slightly higher than the FFR normally.(1 vote)
- Is the LIBOR a lending rate or the borrowing rate? Because why would a bank disclose its lending rate which is based on spread dependent on borrowers credit ratings?(1 vote)
- Can you please explain a negative rate as it pertains to LIBOR?(1 vote)
You might have heard the term LIBOR when people are quoting interest rates. Or they're saying "Hey I'm gonna lend you money a few percentage points above LIBOR" You will hear...LIBOR quoted on some of the financial news channels. And what it is, is just an average of the interest rates that banks are lending to each other. And it is calculated by the British Bank Association. It's actually calcuated by Thomson Reuters for the British Bank Association. But it's there to kind of provide a benchmark for other types of securities and financial transactions. And it literally stands for the London Interbank Offered Rate. So...it's the..... in London...it's the rate..the offered rate between banks. The London Interbank Offered Rate. To understand that a little bit better we have set up two banks over here Bank A and Bank B. And you might have already known that when you go and deposit your money in banks, the bank won't leave all that money around. The way it makes money is lend a good bit of money to other people as loans. And it keeps just enough cash on hand That things well you know, people would actually come and ask for money from their checking account. We have enough on hand You could imagine....every now and then that bank might get low on cash. or it might get close to kind of a reserve requirement that the central bank in that country requires a bank to have on it. So in those situations ...say bank A is getting to that...that situation. They said "let me go borrow some money" Let me go borrow money from another bank. So this is interbank borrowing. Bank B over here they are flushed with cash So they say we don't like to keep so much cash around. We want to lend it. So we can actually get interest. We get no interest on cash So maybe bank B lends money to Bank A So maybe they lend this much cash So that's the new cash that bank A got. Right over there ...the new cash And of course it is a loan So this is a new loan. To offset it, remember assets are equal to liabilities plus equity. So liabilities is this whole thing over here. So this is loan from B for this cash. They have a little bit better of a cushion. And now B, their loan has increased and their cash has decreased. So this is a loan, loan to A. Right now, they took this cash and they gave to bank A And that rate that they lent it at, maybe it was that 1% annual rate. And of course it is to be renewed everyday, it is overnight rate. This rate is an interbank rate. So what they do is on behalf of the British Bank Association They go survey a bunch of banks in London eight, twelve, sixteen banks in London. So they said "Hey what was the rate in which you all transacted" and they will quote that They quote that as the overnight LIBOR So they quoted it, say hey 1.2% across all of the banks that we surveyed But what's interesting about the LIBOR, it is done in ten currencies It is not just in the sterling, the dollar or the yen...It is in ten currencies That's what really differentiate it amongst other things But really differentiate it from the effective Federal Funds Rate which is another interbank borrowing rate But that's in the United States And that's more revolving around policy concerns. The Federal Bank actually tries to change it.