Ibors are interbank interest rate financial benchmarks that are used by financial markets as well as institutions to regulate securities. A benchmark is a standard which a security’s performance is measured against. Stocks and bonds are usually measured through indices. The Ibors benchmarks have been misused by the financial system of some countries and do not give the actual condition of the market. Banks required getting loans from one another to meet the set reserves and to operate hence they collude to manipulate the Ibors (Connor, 2014). A panel of banks estimates the cost of borrowing from within banks before giving submissions on interbank unsecured market. The highest as well as the lowest figures are dropped. Averages are calculated and become the base rate, that is: pibor, tibor, sibor, hibor, euribor, libor and many others.
Pibor, Paris InterBank Offer Rate was a less prominent base rate benchmark for French banks. Tibor was introduced in Japan between the years 1995 to 1998. The Tokyo InterBank Offered Rate was the base interest rate in Japan Money Market. In the Singapore Money Market, Sibor was used. It referred to Singapore Interbank Offered Rate. Hibor, Hong Kong InterBank Offered rate was used for annual securities in the Hong Kong Money Market. These were mostly securities maturing after a year. In the United States of America, the federal Funds rate was used as the base interest rate for securities (Kuo et al. 2012).
In the late 1970s, the London’s economy developed the euro-dollar market. Currencies involved here were the US dollar and the Sterling pound. There was a need for standardized measures to manage loans and exposure to different types of risks. The London financial syste...
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...st rates to gain from interbank lending (Connor, 2014).
Regulation of for Ibors
Most ibors are still used today with major changes applied and regulation put in place by the governments. Europe became the first to form a governing body to regulate financial markets and their institutions. These would ensure transparency in the derivation of benchmarks. Central Banks of individual countries regulate financial markets and institutions of their countries. They determine the benchmarks of their countries fairly because they are run by the government. IOSCO became the global regulator of financial markets and institutions. The members of IOSCO include regional and international securities market regulators and participants. They would set international benchmarks. Banks would be fined for transgressions from their end putting their annual turnover at risk (Deacon, 2004).
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