If you are dating a person named Libor, you might not want to tell them about this one. He might get the wrong idea.
This transaction is a form of credit swap, so we'll start with the basics there. A credit swap typically involves trading the proceeds of a fixed-rate debt security with the proceeds from a floating-rate one.
The owner of a fixed-rate bond wants a little more action; they want the potential upside of an investment that can move along with interest rates. Meanwhile, on the floating-rate side, they are looking for more stability. They like the idea of knowing for sure what the return will be over the long haul.
So the two sides make a trade. They don't trade the actual holdings. They just trade the money generated from the investments.
Usually, the floating-rate part of this transaction is set at the beginning of the swap period. The LIBOR-in-Arrears version changes the timing of this. The rate gets set at the end of the period instead. Then the rate, once it's set, gets applied retroactively to the time period.
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Finance: What is LIBOR?21 Views
Finance allah shmoop what is a lie Boer No it's
not the result of these two zoo animals Mating lie
Boer stands for london interbank offering rate And it's basically
just the british quote fed unquote central bank rate reflecting
the absolute lowest interest rate at which the british banking
system well loan money to its best Most well heeled
customers like you know sainsbury's and bp and barclays and
the guy who plans royal weddings So library is the
best or cheapest rate at which the british banking system
will lend money Most loans come at some premium to
lie before i risk your loans might come in something
like on a live or plus fifty basis points or
something like that so that if lie boris currently quoted
at two point two five percent interest well then the
lie bore plus fifty loan would be loaned out at
two point seven five percent interest And libras important has
been around forever and much of the world uses it
as thie pegging number two then add some risk percentage
on top of it when they quote loans to whoever
they're loaning money to That's basically it No need for 00:01:08.819 --> [endTime] any wild animals teo you know get wild
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