Legal Definitions - London Interbank Offered Rate

The London Interbank Offered Rate (LIBOR) is a daily compilation of the interest rates that major international banks charge each other for large-volume, short-term loans of Eurodollars. These rates are calculated out to one year and are used as the underlying interest rates for derivative contracts in currencies other than the euro.

For example, if a bank in the United States wants to offer a loan in Japanese yen, they may use the LIBOR rate as a benchmark for determining the interest rate on that loan. The LIBOR rate is also used in the pricing of various financial products, such as adjustable-rate mortgages and credit cards.

The LIBOR rate is determined by a panel of banks that report their borrowing costs to the British Bankers Association. The rates are then averaged to create the daily LIBOR rate.