Euribor (Euro Offered Interbank Rates)

By: EconomyWatch   Date: 9 September 2010

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Euribor, or the Euro Interbank Offered Rate, is a reference rate that is based on the average interest rates at which banks borrow unsecured funds from other banks in the interbank market within the European Union. Euribor is one of the most important benchmarks for short fixed-term interbank deposits in the world. Several banks also use Euribor interest rates to determine their rates on savings accounts, mortgages and loans.

How is Euribor Calculated?

Euribor is calculated daily by Reuters on the basis of the rates submitted by a panel of leading European banks. The rates submitted by the panel are interest rates that it expects a prime bank to quote to another bank within the Eurozone for interbank term deposits. While calculating this, Reuters eliminates the quotes that fall within 15% of the highest and lowest range and computes an un-weighted average up to three decimal places from the remaining quotes. The resulting Euribor is then published by Reuters everyday at 11:00 Central European Time (CET) as the reference rate for the day.

Where to Find Euribor

Reuters publishes the current Euribor rate everyday on Reuters pages 248-249. Reuters also makes the current and historical Euribor rates available to its subscribers and other data vendors. One can find Euribor rates on numerous high-quality websites.

Scope of Euribor

Just as LIBOR is used as a reference rate for Sterling- and US dollar-denominated financial instruments, Euro Offered Interbank Rates are used for Euro-denominated derivatives, such as short-term interest rate futures contracts, forward rate agreements and interest rate swaps. The Euribor, thus, forms the basis of several of the world's highly liquid and active interest rate markets.

The period for which a Euribor rate remains applicable on a financial product can range from one week to three weeks and onemonth to 12 months.

Euribor-based Derivatives

The financial derivatives that are based on Euribor rates are:

    1. Euribor contracts: Euribor futures contracts are based on three-month Euribor rates. They rate next to the Chicago Mercantile Exchange's Eurodollar contracts in terms of trading volume within the short-term interest rate futures contracts.
    2. Interest rate swaps: This derivative, which is traded in the interbank market, is based on short Euribor rates. Interest rate swaps have a maturity period of up to 50 years.
    3. Eonia: This is the overnight Euribor rate for unsecured interbank lending.

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