LIBOR

LIBOR stands for the London Interbank Offered Rate and is the rate of interest that banks charge to lend money to each other. The rate is set daily by the British Bankers’ Association who work with a small group of large banks to set the LIBOR rate. Banks borrow from each other to meet their liquidity requirements. On any given day, some banks will have surplus amounts, while some others will need money to meet their customers' needs as well as other liquidity requirements. The LIBOR is the average interest rate that leading banks in London charge when lending to other banks. Over the years, it has assumed the role of a benchmark rate for international loans. Financial institutions track the rate which is released everyday at 11 am London time. When Indian companies borrow dollar or euro loans from foreign banks, the the interest rates on these loans are benchmarked to LIBOR. With domestic interest rates ruling at high levels, it is cheaper for companies to borrow from overseas banks.