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LIBOR AND MIBOR Presented by: Parag Gaikwad Suraj Gupta Shubham Khatri Prashant

INTRODUCTION • An Inter-bank Offered Rate is the lending rate one bank

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offers to the other bank (or any other financial organization). It thus charges some interest on this loan. LIBOR stands for London Inter-bank Offered Rates whereas MIBOR stands for Mumbai Inter-bank Offered Rates. This calls for a need to have a benchmark so that the interest rates don’t differ to a large extent. Generally, the Inter-bank Offered Rate is of short-term nature (overnight to 1 year). Several other financial markets follow different rates like TIBOR, SIBOR etc.

INTRODUCTION - LIBOR • It was first published in 1986 for 3 currencies: USD, GBP and

JPY. Today it is used for 10 different currencies, published every morning at 11:30 am by Thomson Reuters. After the infamous 2012 LIBOR scandal, the Intercontinental Exchange(ICE) controls. Now its called ICE-LIBOR. • They are determined for 15 different borrowing periods (overnight, 1,2-weeks to 1 year). • To calculate it, a survey of interest rate quotations of 18 major London based global banks is made on the beginning of every business day in London i.e. at which rate they are willing to “Offer” their funds as unsecured funding to other A-grade borrower banks. • Out of the 18 responses, the four highest quoted rates and the four lowest quoted rates are deleted and an Arithmetical Mean is arrived of the remaining 10 responses.

Fig 1: LIBOR rates last 30 year chart for the 4 periods as shown above

INTRODUCTION - MIBOR • Similar to the LIBOR, the MIBOR determines the bank lending

rates in India. It is calculated daily by National Stock Exchange of India Limited (NSEIL) and Fixed Income Money Market and Derivative Association of India (FIMMDA). • It is calculated similar to LIBOR by finding the average of the “Offer” of the lending rates with weighted calculations of the surplus funds available with the lender banks for lending to the first-class borrowers. • Since June 22, 2015 FIMMDA ed the NSEIL for calculating the MIBOR and MIBOR was given the name of “FIMMDA-NSE MIBID/MIBOR”. MIBID is the opposite of MIBOR. • Rates are obtained on every business day from “30 Offer Makers” comprising of PSBs, Private Sector Banks, Foreign Banks and the Approved Money Market Dealers and calculated weighted average of the polled rates are displayed on the NSEIL website. MIBOR rates are the “Polled Rates” and not the actual dealing rates.

Fig 2: Short-term MIBOR rates chart since 2010 for the 3periods as shown above

THE LIBOR SCANDAL

THE LIBOR SCANDAL

SIGNIFICANCE OF LIBOR

SIGNIFICANCE OF MIBOR

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