What Are Reference Rates For? / by Divya Kirti.

By:

Kirti, Divya [author.]

Material type: Text

TextSeries: IMF working paper ; WP/17/13.Publication details: Washington, D.C. : International Monetary Fund, 2017.Description: 1 online resource (46 pages)Content type:

text

Media type:

computer

Carrier type:

online resource

ISBN:

1475577656
9781475577655

Subject(s):

Genre/Form:

Electronic books.

Additional physical formats: Print version:: What Are Reference Rates For?DDC classification:

332.46 23

LOC classification:

HG230.3

Online resources:

Click here to access online

Abstract: What is the precise role of reference rates? Why does it matter if LIBOR was manipulated? To address these questions, I analyze the use of reference rates in floating-rate loans and interestrate derivatives in the context of lending relationships. I develop a simple framework combining maturity transformation with three key frictions which generate meaningful funding risk and a rationale for risk management. Reference rates like LIBOR mitigate contractual incompleteness, facilitating management of funding risk. As bank funding costs move with bank credit risk, it makes sense for the reference rate to have a bank credit risk component. Manipulation can add noise, reducing the usefulness of reference rates for this purpose.

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Item type	Home library	Collection	Call number	Materials specified	Status	Date due	Barcode
Electronic-Books	OPJGU Sonepat- Campus	E-Books EBSCO			Available

Print version record.

What is the precise role of reference rates? Why does it matter if LIBOR was manipulated? To address these questions, I analyze the use of reference rates in floating-rate loans and interestrate derivatives in the context of lending relationships. I develop a simple framework combining maturity transformation with three key frictions which generate meaningful funding risk and a rationale for risk management. Reference rates like LIBOR mitigate contractual incompleteness, facilitating management of funding risk. As bank funding costs move with bank credit risk, it makes sense for the reference rate to have a bank credit risk component. Manipulation can add noise, reducing the usefulness of reference rates for this purpose.

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