(UN.)lockDown-What's Next to Normal: A new series by 'The Beta Talks'
LIBOR – London Interbank Offered Rate one of the most sought after number, a benchmark used in setting prices for trillions of dollars of loans and derivatives is set to retire. LIBOR is an average interest rate at which major global banks borrow from each other. It is based on five major currencies including the US dollar, the euro, the British pound, the Japanese yen, and the Swiss franc consisting of 7 different maturities i.e. overnight, one week, and 1, 2, 3, 6 and 12. A total of 35 different combinations of LIBOR rates based on the currencies and the maturities are calculated and reported on each business day.
Despite being such an important benchmark rate, LIBOR is retiring by the end of 2021 and transitioning to an Alternative Reference Rate. Why the transition to an Alternative Reference Rate needed? Which rate is going to be the new possible benchmark rate?
Let us understand what our guest Mr. Pranav Chudgar, Financial Service Risk Management, EY has to say on the transition of LIBOR.
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