The London Interbank Offered Rate or Libor is the average interest rate at which global banks lend to each other for short-term loans. It is a benchmark for variable-rate loans.
Libor is offered in five currencies which are the US Dollar (USD), Euro (EUR), Great Britain Pound Sterling (GBP), Japenese Yen (JPY) and the Swiss Franc (CHF).
On all these five currencies, Libor is issued daily for seven different maturities. So, a total of 35 rates are published every business day.
Libor is calculated by ICE Benchmark Association, which has constituted a panel of global banks for each pair of currency. The panel of banks is selected annually.
These banks provide the rates at which they would offer short-term loans, and these are averaged to reach at Libor.
However, Libor’s credibility took a hit in the 2008 financial downturn. Earlier thought to be an important number worldwide, it was allegedly tampered with by banks for their own advantage in the crisis.