In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with forward rate agreements (FRAs), and with zero coupon swaps (ZCSs).
The London Inter-Bank Offered Rate was an interest rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. It is the primary benchmark, along with the Euribor, for short-term interest rates around the world. Libor was phased out at the end of 2021, and market participants are being encouraged to transition to risk-free interest rates such as SOFR and SARON.
A reference rate is a rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR rate, but it can take many forms, such as a consumer price index, a house price index or an unemployment rate. Parties to the contract choose a reference rate that neither party has power to manipulate.
Eonia was computed as a weighted average of all overnight unsecured lending transactions in the interbank market, undertaken in the European Union and European Free Trade Association (EFTA) countries by a Panel of banks subject to the Eonia Code of Conduct.
SIBOR stands for Singapore Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market. It is similar to the widely used LIBOR, and Euribor. Using SIBOR is more common in the Asian region and set by the Association of Banks in Singapore (ABS).
An interest rate future is a futures contract with an interest-bearing instrument as the underlying asset. It is a particular type of interest rate derivative. Examples include Treasury-bill futures, Treasury-bond futures and Eurodollar futures.
SONIA is the effective reference for overnight indexed swaps for unsecured transactions in the Sterling market. SONIA is a risk-free rate.
TIBOR stands for the Tokyo Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Japan wholesale money market. TIBOR is published daily by the JBA TIBOR Administration.
The Asian Clearing Union (ACU) was established on December 9, 1974, at the initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The primary objective of ACU, at the time of its establishment, was to secure regional co-operation regarding the clearing of eligible monetary transactions among the members of the Union to provide a system for clearing payments among the member countries on a multilateral basis.
The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market. In some countries, the overnight rate may be the rate targeted by the central bank to influence monetary policy. In most countries, the central bank is also a participant on the overnight lending market, and will lend or borrow money to some group of banks.
Stockholm Interbank Offered Rate is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Swedish wholesale money market. STIBOR is the average of the interest rates listed at 11 a.m.
MIBOR is the overnight interest rate or reference rate based on the averaged interest rates at which Indian banks borrow unsecured funds from counterparties in the Indian rupee wholesale money market . The rate was originally published by the Fixed Income Money Market and Derivative Association of India (FIMMDA) and the National Stock Exchange of India (NSE). This was moved to a dedicated organisation, Financial Benchmarks India Private Ltd (FBIL) in 2015 which is jointly owned by FIMMDA, the Foreign Exchange Dealers’ Association of India (FEDAI) and the Indian Banks' Association (IBA). The rate is based on similar rates in London such as Libor and Euribor.
The interbank lending market is a market in which banks lend funds to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight. Such loans are made at the interbank rate. A sharp decline in transaction volume in this market was a major contributing factor to the collapse of several financial institutions during the financial crisis of 2007–2008.
SARON stands for Swiss Average Rate Overnight and is a measurement of the overnight interest rate of the secured funding market denominated in Swiss Franc (CHF). It is based on transactions and quotes posted in the Swiss repo market, and is administered by SIX.
The Libor scandal was a series of fraudulent actions connected to the Libor and also the resulting investigation and reaction. Libor is an average interest rate calculated through submissions of interest rates by major banks across the world. The scandal arose when it was discovered in 2012 that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were. Libor underpins approximately $350 trillion in derivatives. It is currently administered by Intercontinental Exchange (ICE), which took over running the Libor in January 2014.
The Prague Inter Bank Offered Rate (PRIBOR) is the average rate at which banks are willing to lend liquidity on the Czech interbank money market and as such, reflects the price of money on the market.
The Karachi Interbank Offered Rate (KIBOR) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Karachi wholesale money market. The banks used it as a benchmark in their lending to corporate sector.
The Euro Short-Term Rate (€STR) is a reference rate for the euro currency. This interest rate can be used as the rate referenced in financial contracts that involve the euro. €STR is administered and calculated by the European Central Bank (ECB), based on the money market statistical reporting of the Eurosystem. According to the indications of the working group on euro risk-free rates, €STR replaced the Euro Overnight Index Average (EONIA) as the Euro risk-free rate for all products and contracts.
SOFR Academy, Inc. is a U.S.-based economic education and market information provider. In connection with global reference rate reform and the transition away from the London Interbank Offered Rate (LIBOR), the firm operationalized benchmark credit spreads US-dollar Across-the-curve credit spread indices (AXI) that can be referenced in lending products in conjunction with the Secured Overnight Financing Rate (SOFR) to mitigate mismatches for financial institutions between their assets and liabilities in times of market stress thereby promoting their ability to provide credit.
