LIBOR Tutorial

The speaker provides an in-depth overview of LIBOR, the London Interbank Offered Rate.  It is the rate at which banks will lend to each other on the London interbank market.  It is the most widely used benchmark interest rate and very important in setting rates for a variety of financial products, such as adjustable rate mortgages and syndicated loans.

He discusses how LIBOR is calculated by the BBA; basically, it is an average of interbank lending rates from 16 leading banks.  The rates are sorted from lowest to highest and only the middle two quartiles are used to average a rate. 

Every day, the BBA published 150 libor quotes, 15 for each of the 10 foreign currencies in which it is quoted.  There are 15 quotes to encompass 15 different maturity dates going out to 1 year, including overnight, spot next, 1 month, 2 month.....and 12 months.