Question

what is the difference between the Libor rate and the federal funds rate?

Answer 1

LIBOR: It is abbreviated as London Interbank Offered Rate is the essential interest rate that is utilized in loaning between banks on the London interbank market and furthermore utilized as a source of perspective for fixing the interest rate on several other types of loans.

Federal Funds Rate: It is the interest rate which is set by the Federal Open Market Committee under the supervision of the Federal Reserve. It is the rate at which banks will credit each other cash for the time being to meet reserve requirements. It is likewise a important standard for the short-term interest rates in the banking sector.

Difference:

The federal funds rate and the LIBOR rates are firmly connected, the rates in any one of these markets will diminish comparative with the inverse and borrowers can get for the time being LIBOR market rather than federal funds rate market. With this outcome the LIBOR will increment as an effect of demand and the Fed funds rate will diminish with a reduction in demand.

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