Financial Benchmarks LIBOR, MIBOR, MIBID Explained

Financial benchmarks such as LIBOR are used to standardize rates such as foreign exchange rate or interest rate which are followed by banks and other financial institutions all over the world.

Financial benchmarks ensure that the even if the interest rates charged by multiple banks vary, they fall within the same standard range.

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The following are some of the most popular financial benchmarks or Inter-Bank offer rates that the finance gurus should be aware of:

1. LIBOR

LIBOR or London Inter-Bank Offer Rate was established in 1986, covering only three currencies- GBP (Great Britain Pound), USD (United States Dollar) and JPY (Japanese Yen) initially. However, more currencies were added later on, and today it has a total of 10 currencies.

LIBOR rates are published daily by Thomson Reuters for 15 types of borrowing periods viz. overnight, one week, two weeks, one month…. up to one year.

2. MIBOR

MIBOR or Mumbai Interbank Offered Rate is the inter-bank offer rate followed by the Indian banks which was launched in 1998 by the Committee for the Development of the Debt Market.

Just like LIBOR, MIBOR calculated and published on a daily basis by the NSE (National Stock Exchange) along with the FIMMDA (Fixed Income Money Market and Derivative Association of India).

MIBOR is calculated by weighting the average of the lending rates offered by different banking groups viz. private sector banks, public sector banks, foreign banks in India, etc.

3. MIBID

MIBID is also a financial benchmark followed by the Indian banks but it’s the opposite of MIBOR.

Unlike MIBOR, which is the rate at which banks try to offer loans to the other banks, MIBID is the rate at which the banks try to take loans from the other banks. Naturally, MIBOR rate is usually higher than MIBID rate for the simple reason that a lender would want a higher interest when giving a loan, and a lower interest when getting one.