There’s a bit of a hullabaloo going on at the moment about LIBOR. And in truth, it is a pretty big deal.
Yes, even bigger than whether or not Stormy Daniels got jiggetty with an old guy wearing a wig. And get this… even bigger than Kanye’s man-love for the same guy.
What is LIBOR?
Let’s start here.
Whether you know it or not, LIBOR has for decades played an integral part in the cost of your beer. That’s because it has provided a means to determine the cost of debt in everything — from student loans and mortgages to complex derivatives.
What happens is this…
A daily survey is taken from 15 of the largest banks in the world.
In this little test each bank submits a quote estimating how much it would be charged by the other banks to borrow money across a range of durations without any collateral being put up.
All the rates are then tossed into a baking dish, baked, and the pie that comes out is an average rate known as LIBOR.
It stretches across 7 different maturities and 5 currencies, and, together with Euribor, it is the primary benchmark for short-term rates across this ball of dirt we call home.
Thomson Reuters publishes it midday and pretty much the entire financial community involved in debt markets of any kind (and plenty who’re only tangentially connected) furrow their brows and sip their long blacks while scanning these very rates in order to more intelligently make critical business decisions, which ultimately affect the cost of your beer.
And so, as you can see, it is very important.
How big?
$350 Trillion!
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