LIBOR, or the London Interbank Offered Rate, is a benchmark that dictates daily interest rates on loans and financial instruments around the world.
To calculate LIBOR, the Intercontinental Exchange (ICE) asks banks around the world to provide the rates at which they would offer a short-term loan to each other. It then averages each response to give the daily LIBOR figure.
LIBOR is calculated in five different currencies – the US dollar, euro, British pound, Japanese yen and Swiss franc – and seven different lengths of loan. That means that there are actually 35 different LIBOR numbers posted each day.
Financial companies around the world then use the LIBOR figure to calculate their own interest rates on loans, mortgages, credit cards and financial derivative prices.