Libor Rates Key Terms

Understand LIBOR terminology to better understand how LIBOR rates function

By Yvette Pryce, Freelance Writer

If your business often deals with or engages in commercial loans, LIBOR rates key terms are a necessity. Just consulting LIBOR rates charts won't give you enough insight into the significance of LIBOR; however, studying terminology will provide you with the context for its rates. Once you understand the context, you'll have a deeper insight into the rates and how they may affect your business. Understanding basic terminology associated with LIBOR rates, such as "Eurodollar," "LIBOR adjustable rate mortgage," and even "LIBOR" itself will help you build a deeper insight into this important financial index.

LIBOR

LIBOR, an acronym for London InterBank Offered Rate, is the interest rate at which banks in the London interbank offer short-term (up to one year) deposits to one other. LIBOR publishes rates daily and functions as an international financial index.
Try: Read more about LIBOR at FedPrimeRate.com.

USD LIBOR

The USD LIBOR is same as the LIBOR, except that it's the rate at which banks in the London interbank offer short-term deposits in US dollar denominations to one other. The LIBOR includes ten currencies, with each currency's rate independently set.
Try: At Liborated.com, you can read an article about the reaction of USD LIBOR to US financial announcements to better understand how it functions.

6-month LIBOR

LIBOR rate calculation fluctuates depending upon whether you're looking at the daily rate or a rate in terms of months, such as a 6-month LIBOR rate. Whereas the daily rate reflects the rate on that day, a 6-month LIBOR rate is the interest rate on a deposit held for six months. LIBOR also offers 1 to 12-month rates.
Try: View a graph and chart tracking the 6-month LIBOR rate at MoneyCafe.com.

TED spread

"TED" is an acronym for "Treasuries/Eurodollar spread," and the TED spread is the difference between the three-month rate for LIBOR and the three-month U.S. Treasury yield. The TED spread is a tool that helps measure perceived credit risk of the US economy.
Try: Get a better understanding of TED spread at the Motley Fool.

Eurodollars

Eurodollars are US dollars deposited in banks outside of the US, whether in a foreign bank or in a foreign branch of a US-owned branch, generally in Europe. Three-month LIBOR rates form the basis of the Chicago Mercantile Exchange's Eurodollar futures contracts.
Try: Read more about Eurodollars at Trade Center.

LIBOR adjustable rate mortgage (ARM)

A LIBOR ARM is a mortgage with a rate that tracks the LIBOR.
Try: Bankrate provides information on LIBOR rates.