Question

What are the key differences between SOFR, LIBOR, Fed Funds rate and Euribor?

Answer 1

Secured Over Night Financing rate is the rate of borrowing on derivatives and loans that are denominated in dollars.These rates are based on the transactions that take place in the treasury market.The SOFR is based on transactions and not on estimates or projections.SOFR is secured so it does not involve credit risk.The London Inter Bank Offer Rate(LIBOR) refers to the average rate of interest at which certain banks that operate in the London Secondary market lend each other .The rates are estimates prepared by each bank,and it's estimated on a day to day basis.LIBOR is unsecured, so it involves credit risk.Fed Funds rate refer to the rate which the commercial banks in the US lend their excess reserves among themselves .It takes place overnight.The rate will be set by the FOMC(federal Open Market Committee). They are updated eight times a year in accordance with the economic condition.The fed fund rate has a significant impact on the economy and the rates offered by banks on commercial loans.EURIBOR(Euro Inter Bank Offered Rate) it refers to the interest rate at which the European banks engage in lending among themselves.The banks in Europe use this rate as a benchmark for lending their excess reserves for a period ranging anywhere from a week to a year.Derivatives and other financial products that are denominated in Euros are based on EURIBOR . They are published on a day to day basis.The lending is unsecured