What is the interbank rate?
In the world of finance, interest costs for money. The amount of interest paid for fund lending is the function of current market rates, availability of funds and other factors such as the length of the loan or the previous credit history. Banks are also subject to interest paying when they borrow funds. The most recurrent or lowest interest rate is the interbank rate, which is the bank rate to charge each other short -term loans.
To better understand how the interbank rate is used, also referred to as speed overnight, it is important to understand how the rate originated. Banks create income by lending money and by billing the interest rate on these borrowed funds. Because banks give deposits to debtors, they only have a percentage of the total value of the deposit. In most large currency systems, such as the system received by the United States and the Federal Reserve, banks need to hold a certain amount of "cash at hand" in case of Custovarsybrat funds. The system is to help prevent “bank run” or panic of selection. If a reserve or minimum cash amount is too low, the bank must borrow funds. The rate at which banks borrow funds is referred to as the interbank rate.
One of the most popular interbank rates in the world is the London interbank offer (Libor). It represents the best interest rate that the debtor can obtain for a loan, and is used as a reference rate by the United States, Canada, Switzerland and Great Britain. This is also used by market analysts and credit officials as a scale for price loans for less than perfect debtors. For example, a large company loan may have a specified interest rate Libor +.05, while a small beginning company may have a specified interest rate equal to Libor +3.00. In general, the higher the debtor's risk, the higher the above rateLibor.
One factor that significantly affects the interbank rate is forex or foreign exchange. Any nation that issues a currency can participate in a currency trading market. Central banks use interbank rate as a factor in determining monetary policy. In general, the increase in the interbank rate is a sign that the flow of capital has decreased. Similarly decreasing interest rates are a sign that the flow of capital has increased. As the cost of money rises, fewer people can afford to access capital and follow the credit crisis. As the cost of money falls, more people can afford to gain access to finances and flourish economics. Changes in monetary policy of the central bank can significantly affect forex prices, and therefore the currency traders carefully monitor the decisions of large central banks.