Definition
The London Interbank Bid Rate (LIBID) was the average interest rate at which major London banks were willing to bid for eurocurrency deposits from other banks. Eurocurrency deposits refer to deposits held in a currency outside the issuing country’s domain—the ultimate international party trick! This rate was useful for institutions to gauge borrowing costs across international markets, although it found its farewell performance in 2021 due to the much-publicized rate-fixing scandals.
LIBID vs LIBOR Comparison
| Feature | LIBID (London Interbank Bid Rate) | LIBOR (London Interbank Offered Rate) |
|---|---|---|
| Definition | Rate banks bid to borrow eurocurrency | Rate banks ask to lend eurocurrency |
| Purpose | Reflects borrowing costs | Reflects lending costs |
| Typical Currency | Any currency deposited outside the issuing country | Any currency, notably US dollars |
| Phasing Out | Phased out in 2021 | Phased out in 2021 |
| Common Use | Used less frequently than LIBOR | Widely used benchmark for loans |
Examples
What Is a Eurocurrency Deposit?
A eurocurrency deposit refers to any currency deposited in a bank in a country other than the one that issued it. For example, a U.S. dollar deposited in a Swiss bank is a eurocurrency deposit. It sounds like a European vacation—but one where your money gets the sunshine instead!
Related Terms
- LIBOR (London Interbank Offered Rate): The rate at which major banks lend to one another, serving as a global benchmark for interest rates on various financial instruments.
- Eurocurrency: Any currency that is held on deposit outside of its own domestic market.
- Interest Rate: The amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal.
Illustrative Diagram
graph TD;
A[LIBID] --> B{Avg. Interest Rate}
A --> C[Eurocurrency Deposits]
B --> D[Major London Banks]
C --> E[Deposits Outside Issuing Country]
D --> F[Lending Costs]
Humorous Insights
“How to impress your friends? Just drop terms like LIBID and LIBOR in casual conversation! They’ll think you’re deep into the global finance scene when really you just Googled ‘banking jargon!’” 😜
Did you know? After the scandals, people joked that ‘LIBOR’ sounded more like a bad dating decision than a bank rate! How about being fixed like bad relationships? 😂
Frequently Asked Questions
Q1: What happened to LIBID and LIBOR?
A1: They were phased out due to significant scandals involving rate manipulation that left more than just a dent in the finance sector!
Q2: Can LIBID be used today?
A2: Nope! Since 2021, LIBID has been retired, much like disco and parachute pants.
Q3: What’s the primary function of eurocurrency?
A3: It allows for deposits and loans to occur in foreign currencies, making it a useful tool for businesses engaging in international trade!
Q4: What replaced LIBID and LIBOR?
A4: Alternatives like the Secured Overnight Financing Rate (SOFR) and other benchmarks have taken their place, keeping the finance world moving forward!
References for Further Study
- Investopedia - LIBID
- Bankrate - Understanding LIBOR and Its Alternatives
- Book: “The Basics of Financial Econometrics” by Vishakha N. Desai covers aspects of interbank rates extensively.
Test Your Knowledge: LIBID and LIBOR Quiz
Thank you for exploring the world of LIBID with us! It’s been a wild ride down to the banks! Remember, finance can be fun; all you need is a little knowledge and a great sense of humor! Keep those financial gears turning! 🏦💃
