Many of us were introduced to the term LIBOR for the first time this week, when it was revealed that some banks might have been manipulating the dull but vital interest rates to gain an edge in the market.
LIBOR – the London Interbank Offered Rate – is a series of interest rates determined by a handful of representatives from the biggest banks in London. The rates are what the banks would charge other banks to borrow on different loan categories, which determines the global flow of billions of dollars and perhaps even the interest rate on your savings account or home mortgage.
“We’re talking about the reference rate by which … the most complex derivative to the credit card in your pocket is actually set,” says Mark Blyth, an economist at Brown University.
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