LOS e, (Part 2): Define LIBOR and Euribor.

Q1. Which of the following is least likely a characteristic of London Interbank Offered Rate (LIBOR)?

A)   Adjusted daily.

B)   Set by the European Central Bank.

C)   Paid on loans denominated in U.S. dollars.

Q2. If the U.S. discount rate is 2.5% and the London Interbank Offered Rate (LIBOR) is +7.5%, the add-on interest that must be paid on a 60-day, $250 million loan is closest to:

A)   $3.13 million.

B)   $4.17 million.

C)   $3.08 million.

Q3. Euribor is:

A)   the same as EuroLIBOR.

B)   the rate on U.S. dollar deposits in continental Europe.

C)   published by the European Central Bank.

Q4. If 60-day London Interbank Offered Rate (LIBOR) is 6 percent, the interest on a 60-day LIBOR-based Eurodollar deposit of $990,000 is:

A)   $10,000.

B)   $9,900.

C)   $59,400.

Q5. The offer rate on U.S. dollar (USD) denominated loans between large banks in London is called:

A)   London Interbank Offered Rate (LIBOR).

B)   Eurobor.

C)   the Exchequer rate.

LOS e, (Part 2): Define LIBOR and Euribor. fficeffice" />

Q1. Which of the following is least likely a characteristic of London Interbank Offered Rate (LIBOR)?

A)   Adjusted daily.

B)   Set by the European Central Bank.

C)   Paid on loans denominated in U.S. dollars.

Correct answer is B)        

LIBOR is published by the British Bankers Association based upon quotes from a number of large banks. The rate is determined on a daily basis. LIBOR can apply to loans in U.S. dollars, as well as a variety of other major currencies.

Q2. If the ffice:smarttags" />U.S. discount rate is 2.5% and the London Interbank Offered Rate (LIBOR) is +7.5%, the add-on interest that must be paid on a 60-day, $250 million loan is closest to:

A)   $3.13 million.

B)   $4.17 million.

C)   $3.08 million.

Correct answer is A)

Add-on interest = LIBOR × (60/360) × $250 million
Interest = 7.5% × (1/6) × $250 million = $3.125 million

Q3. Euribor is:

A)   the same as EuroLIBOR.

B)   the rate on U.S. dollar deposits in continental Europe.

C)   published by the European Central Bank.

Correct answer is C)        

Euribor is the interbank lending rate for Euro denominated loans, published by the European Central Bank, and compiled in Frankfurt.

Q4. If 60-day London Interbank Offered Rate (LIBOR) is 6 percent, the interest on a 60-day LIBOR-based Eurodollar deposit of $990,000 is:

A)   $10,000.

B)   $9,900.

C)   $59,400.

Correct answer is B)

0.06 × (60/360) × 990,000 = $9,900.

Q5. The offer rate on U.S. dollar (USD) denominated loans between large banks in London is called:

A)   London Interbank Offered Rate (LIBOR).

B)   Eurobor.

C)   the Exchequer rate.

Correct answer is A)

The rate on USD denominated loans between large banks in London is the LIBOR.

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