Euro Interbank Offer Rate
Euribor, or the Euro Interbank Offer Rate, is a reference rate that is constructed from the average interest rate at which eurozone banks offer unsecured short-term lending on the inter-bank market. The maturities on loans used to calculate Euribor often range from one week to one year.
This is the benchmark rate with which banks lend or borrow excess reserves from one another over short periods of time, from one week to 12 months. These short-term loans are often structured as repurchase agreements (repos) and are intended to maintain bank liquidity and to make sure that excess cash is able to generate an interest return rather than sit idle.
The Euro Interbank Offered Rate (Euribor) is the benchmark interest rate at which eurozone banks offer unsecured short-term loans in the interbank market. The loan terms used to calculate Euribor typically range from one week to one year.
It is the benchmark rate for short-term borrowing or lending of excess reserves between banks, with terms ranging from one week to 12 months. These short-term loans are often structured as repurchase agreements (repos) to maintain bank liquidity and ensure that excess cash earns interest rather than sitting idle.
Definition
The Euro Interbank Offered Rate (Euribor) is the average interest rate at which eurozone banks offer unsecured short-term loans in the interbank market. It serves as the benchmark rate for interbank lending, typically for loan terms ranging from one week to one year.
Origin
Euribor was officially introduced on January 1, 1999, alongside the launch of the euro. It was established to provide a unified benchmark rate, replacing the individual national rates, and to promote the integration and stability of the eurozone financial markets.
Categories and Characteristics
Euribor has various maturities, including one week, one month, three months, six months, and one year. The rates for each maturity are calculated based on daily quotes from major eurozone banks. Key characteristics include:
- Transparency: The calculation method of Euribor is publicly available, and the list of quoting banks and daily rates can be accessed.
- Market Reflection: Euribor reflects market expectations of future interest rate trends and serves as a crucial reference for financial markets.
- Wide Application: Euribor is widely used in pricing various financial products, such as loans, mortgages, and derivatives.
Specific Cases
Case 1: A commercial bank in the eurozone needs to borrow funds in the short term to meet liquidity requirements. The bank can borrow an unsecured three-month loan in the Euribor market at the current three-month Euribor rate plus a risk premium.
Case 2: A homebuyer in the eurozone applies for a floating-rate mortgage. The mortgage rate is based on the six-month Euribor rate plus the bank's fixed margin. Every six months, the mortgage rate is adjusted according to the latest six-month Euribor rate.
Common Questions
Q: What is the difference between Euribor and Libor?
A: Euribor is the benchmark rate for interbank lending in the eurozone, while Libor is the benchmark rate for interbank lending in London, covering multiple currencies. Their calculation methods and application scenarios differ.
Q: What factors influence Euribor?
A: Euribor is influenced by market supply and demand, the economic conditions of the eurozone, the monetary policy of the European Central Bank, and other factors.
