EURIBOR: Euro Inter Bank Offered Rate

Introduction

The Euro Inter Bank Offered Rate, commonly known as EURIBOR, is a reference interest rate reflecting the average rate at which European banks lend unsecured funds to each other. Introduced in 1999, it is crucial in the financial markets of the Eurozone.

Types

EURIBOR rates are published daily for various tenors, ranging from one week to one year. The main categories include:

• 1-Week EURIBOR
• 1-Month EURIBOR
• 3-Month EURIBOR
• 6-Month EURIBOR
• 12-Month EURIBOR

Detailed Explanation

EURIBOR is calculated based on the rates provided by a panel of large European banks, known as the EURIBOR panel banks. The rates are compiled by the European Money Markets Institute (EMMI) and involve multiple steps:

• Submission: Panel banks submit daily lending rates.
• Elimination: Highest and lowest 15% of the rates are discarded.
• Averaging: The remaining rates are averaged to determine the EURIBOR.

Mathematical Formula/Model

The EURIBOR is calculated using a trimmed mean:

where:

• \( N \) is the total number of submitted rates,
• \( k \) is the number of highest and lowest rates excluded,
• \( r_i \) are the remaining rates.

Importance

EURIBOR serves as a benchmark for a vast range of financial products including:

• Mortgages: Interest rates on variable rate mortgages.
• Loans and Bonds: Corporate and government debt securities.
• Derivatives: Interest rate swaps, futures, and options.

Related Terms

• LIBOR: London Inter Bank Offered Rate, similar benchmark for loans in the London market.
• SOFR: Secured Overnight Financing Rate, an alternative to LIBOR.
• Swap Rate: The fixed rate exchanged for a floating rate in an interest rate swap.

Inspirational Stories

“In finance, everything is calculated but nothing is certain.” – Alexis de Tocqueville

FAQs

Q: What determines EURIBOR rates? A: The rates are determined by the average interest rates submitted by a panel of European banks.

Q: How often are EURIBOR rates published? A: Daily at 11:00 CET.