What Went Wrong with Libor Rate
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GROUP #: 5
MEMBERS #: 47713, 00000, 00000, 00000, 00000
PROGRAM: MBA29
COURSE: FINANCE IN INTERNATIONAL MARKETS
INSTRUCTOR: PROF. LUC KEULENEER
GROUP PAPER: WHAT WENT WRONG WITH LIBOR RATES?
“Honesty is a very expensive gift. Do not expect it from cheap people” Warren Buffet
Table of Contents
Introduction 2
History 2
Origen of the crisis 3
Probable Reasons for the LIBOR manipulation 5
Main players involved in the LIBOR scheme 6
Recommendations on what to do to avoid this problem 6
Reference List 8
What when wrong with LIBOR rates?
Introduction
Commerce and trading are essential for the world economy and both are intrinsically dependent on money transfers and currency swap; not only, from one country to another, but also from one financial institution to another. The glue that allows this efficient funneling of funds is the rate that both the borrower and lenders agree to pay. However, the rate per se is not useful if it does not trustworthy. That is why it is so important to count on with an interest rate whose fixing and utilization be clean of any spot of misrepresentation and manipulation from its authors. There are a handful of such as rates in the current international financing market: Tibor, Libor, Sibor and Euribor. Nevertheless, by far the main interest rate utilized is LIBOR (London Inter-Banking Offered Rate). The total financial impact varies from nearly $554 trillion in OTC Interest rate Derivatives and €316 trillion in Short term Interest (Garcia, 2012, p. 1) to $360 trillion in financial products in different currencies (Scheiner & Broda, 2012, p. 1).
Unfortunately, since 2007 to 2009 there were reports and investigations containing evidence that the LIBOR rate had been artificially manipulated. The scheme was to
[pic]
GROUP #: 5
MEMBERS #: 47713, 00000, 00000, 00000, 00000
PROGRAM: MBA29
COURSE: FINANCE IN INTERNATIONAL MARKETS
INSTRUCTOR: PROF. LUC KEULENEER
GROUP PAPER: WHAT WENT WRONG WITH LIBOR RATES?
“Honesty is a very expensive gift. Do not expect it from cheap people” Warren Buffet
Table of Contents
Introduction 2
History 2
Origen of the crisis 3
Probable Reasons for the LIBOR manipulation 5
Main players involved in the LIBOR scheme 6
Recommendations on what to do to avoid this problem 6
Reference List 8
What when wrong with LIBOR rates?
Introduction
Commerce and trading are essential for the world economy and both are intrinsically dependent on money transfers and currency swap; not only, from one country to another, but also from one financial institution to another. The glue that allows this efficient funneling of funds is the rate that both the borrower and lenders agree to pay. However, the rate per se is not useful if it does not trustworthy. That is why it is so important to count on with an interest rate whose fixing and utilization be clean of any spot of misrepresentation and manipulation from its authors. There are a handful of such as rates in the current international financing market: Tibor, Libor, Sibor and Euribor. Nevertheless, by far the main interest rate utilized is LIBOR (London Inter-Banking Offered Rate). The total financial impact varies from nearly $554 trillion in OTC Interest rate Derivatives and €316 trillion in Short term Interest (Garcia, 2012, p. 1) to $360 trillion in financial products in different currencies (Scheiner & Broda, 2012, p. 1).
Unfortunately, since 2007 to 2009 there were reports and investigations containing evidence that the LIBOR rate had been artificially manipulated. The scheme was to