LIBOR

LIBOR stands for "London Inter-Bank Offered Rate." The LIBOR is an international index which follows the world economic condition. It allows international investors to match their cost of lending to their cost of funds. LIBOR is based on rates that banks in London offer each other for inter-bank deposits. From a bank's perspective, deposits are simply funds that are loaned to them. In essence, LIBOR is a rate at which a fellow London bank can borrow money from other banks.

There are hundreds of LIBOR rates reported each month in various currencies. The most common LIBOR rate used in the United States is the 1 Year LIBOR. This is a LIBOR rate for a one year deposit in U.S. Dollars during a given month. This rate is published on a daily basis by the Wall Street Journal.