Interest Rate Markets

Types of Rates
Treasury rates
LIBOR rates
LIBID
Repo rates
Zero rates
LIBOR
Libor stands for London interbank offered rate. The
interest rate at which banks offer to lend funds
(wholesale money) to one another in the
international interbank market.
Libor is a key benchmark rate that reflects how
much it costs banks to borrow from each other.
LIBID
Interest rate at which London banks are willing to
borrow from one another in the inter-bank market.
LIBID is the average of rates which five major
London banks willing to bid for a
$10 million deposit for a period of three or
six months.



TREASURY NOTE
Negotiable debt obligations of a national
(federal) government, comprising of treasury
bills (maturity less than one year), treasury
notes (maturity one to ten years), and treasury
bonds (maturity over 10 years). Treasuries are
backed by full faith and credit of
the issuing government and have low liquidity
risk and almost zero credit risk. Since they are the
safest form of investment, their yields are typically
lower than all other kinds of debt securities of
comparable maturities, and is used as
a benchmark for evaluating the yields on municipal
and corporate debt securities. Treasuries constitute
the negotiable debt obligations of a government.

Repo rates
Repo rate is the rate at which the central bank of a
country lends money to commercial banks in the
event of any shortfall of funds.
Repo rate is used by monetary authorities to control
inflation.
In the event of inflation, central banks increase
repo rate as this acts as a disincentive for banks to
borrow from the central bank. This ultimately
reduces the money supply in the economy and thus
helps in arresting inflation.
The central bank takes the contrary position in the
event of a fall in inflationary pressures. Repo and
reverse repo rates form a part of the liquidity
adjustment facility.