Question

What is the difference between an indicative price like LIBOR and a transaction price like the S&P 500 and why is it important?

Answer 1

Indicative prices are those prices that indicate the trend of securities. For example, an increase in LIBOR price will show that the rate of interest for loans will increase by all the banks. However, the transaction price is the actual price at which the transaction happens. It the price at which the deal is closed.

The importance of indicative price is to identify the trend or indication of the securities. It helps in determining the strategies which an investor can consider to make his decision. It is the most important from the point of view of strategizing. However, the transaction price is the price at which deal is closed finally. It is vital for actioning the strategy.

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