Financial institutions the world over use Libor—short for the London interbank offered rate—to set the interest paid on everything from mortgage loans to complex financial instruments. But now questions are being raised about whether the rate has been manipulated. Here's what you need to know about how Libor affects you.What exactly is Libor?
Libor is a global interest rate benchmark that's used to set rates on $150 trillion worth of financial products. Each day, the London-based British Bankers' Assn. (BBA) surveys 16 banks, asking each for the rate they'd charge their peers to borrow cash—ranging from an overnight loan to one that matures in 12 months. From the reported rates on 15 different maturities, BBA drops the top and bottom four and averages the middle eight to calculate the rate. On May 27, the six-month Libor was 2.84938%.
What does Libor have to do with me?
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