London Interbank Offered Rate (LIBOR)
What it is:
How it works/Example:
LIBOR is an average of inter-bank deposit rates offered by members of the British Bankers Association (BBA). Because of its basis on supply and demand, LIBOR is used as the rate of reference for many securities around the globe. There are 15 different LIBOR rates, each corresponding to varying maturity dates and currencies.
Why it matters:
LIBOR is one of the most widely used benchmarks for short-term interest rates and is unlike the prime rate in the United States, which is somewhat arbitrarily based on certain banks' lending costs plus a profit margin.