1. Was the market harmed by Barclay's low balling of rates (e.g., rates are only moved...

1. Was the market harmed by Barclay's low balling of rates (e.g., rates are only moved down).

Expert Solution

Solution:-

Yes, the market definitely got harmed by Barclay's low balling of rates. LIBOR acts as the benchmark for all interest rates charged by the bank on its loans and also the interest rates offered by it to the deposit holders.

So, while a lower LIBOR would reduce the interest cost of many market participants, it doesn't come without its negative effects. The Barclay's and many other institutions artifically suppressed the LIBOR in order to allow their traders to benefit on their derivatives trading positions in the market which means that the lowballing directly resulted in traders manipulating the market and using it to make unlawful and unethical gains. This resulted in losses to many market participants who had the opposite positions in the derivatives market.

This was not just unlawful but also harmed the integrity of the market which is the most crucial thing based on which market participants invest their capital and make markets work.

Moreover, artificially suppressing the benchmark rates is very harmful for the entire economy as the whole purpose of higher rates when required, etc get undone and the free markets don't work efficiently anymore in the credit market.

Therefore, the Barclay's low balling of rates was very harmful for the market even if the rates only moved down.

jeff jeffy answered 1 year ago

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