Euro Interbank Offered Rate (Euribor)

What is Euribor?

The Euro Interbank Offered Rate, or Euribor, is a benchmark interest rate at which banks can borrow unsecured funds from other banks in the eurozone market. It’s crucial for the European financial industry as it serves as the basis for pricing various financial instruments including mortgages, savings accounts, and derivatives.

Key Points:

Calculation: Euribor rates are calculated daily from a panel of 20 large European banks that lend and borrow funds from each other.
Published by: The European Money Markets Institute (EMMI).
Maturities: Euribor rates are available for terms ranging from one week to twelve months.

Examples of Euribor Usage

Example 1: Mortgages

Many European mortgages are priced using Euribor as a reference rate. For instance, a variable-rate mortgage might be expressed as Euribor + 2%, meaning that if the Euribor rate today is 0.5%, the mortgage interest rate would be 2.5%.

Example 2: Savings Accounts

Banks might offer savings accounts with interest rates tied to Euribor. If Euribor rates rise, the interest on savings could also increase by a corresponding margin.

Example 3: Derivatives

Financial derivatives, such as interest rate swaps and futures, often have their payments and values tied to movements in Euribor.

Frequently Asked Questions about Euribor

Q: How often is Euribor updated?

A: Euribor rates are updated daily.

Q: Who oversees Euribor?

A: Euribor is administered and published by the European Money Markets Institute (EMMI).

Q: How many Euribor rates are there?

A: As of now, there are five Euribor rates corresponding to different maturities—1 week, 1 month, 3 months, 6 months, and 12 months.

Q: Why is Euribor important?

A: Euribor serves as a critical benchmark for setting interest rates on a wide range of European financial products including loans, mortgages, and savings accounts.

Q: How can investors follow daily Euribor rates?

A: Investors can follow Euribor rates on financial news websites and the official EMMI website.

Interbank Market

A marketplace where banks lend and borrow funds to manage liquidity and meet regulatory requirements.

EONIA

The Euro Overnight Index Average is an effective overnight reference rate for the eurozone, based on overnight transactions in the interbank market.

EURONIA

The Euro Overnight Index Average for sterling-denominated overnight lending.

Online References

Suggested Books for Further Studies

“International Financial Management” by Jeff Madura
“Fixed-Income Securities” by Bruce Tuckman and Angel Serrat
“Financial Markets and Institutions” by Frederic S. Mishkin

Quizzes on Euribor

Accounting Basics: “Euro Interbank Offered Rate (Euribor)” Fundamentals Quiz

### What is Euribor? - [ ] The standard interest rate for personal loans in the EU. - [x] The rate at which banks in the eurozone lend to each other. - [ ] A fixed rate set by the European Central Bank. - [ ] The interest rate for government bonds in Europe. > **Explanation:** Euribor stands for Euro Interbank Offered Rate, which is the rate at which banks in the eurozone lend to one another. ### Who publishes Euribor? - [ ] European Central Bank - [ ] European Commission - [ ] Bank of England - [x] European Money Markets Institute > **Explanation:** Euribor is published by the European Money Markets Institute (EMMI). ### How often is Euribor updated? - [x] Daily - [ ] Weekly - [ ] Monthly - [ ] Yearly > **Explanation:** Euribor rates are updated daily. ### Euribor is best described as: - [ ] An overnight index average for the eurozone. - [ ] A fixed interest rate. - [x] A benchmark interest rate for unsecured interbank loans. - [ ] The lowest interest rate offered to consumers. > **Explanation:** Euribor is a benchmark interest rate used for unsecured interbank loans within the eurozone. ### Euribor can influence: - [ ] Only mortgage rates. - [ ] Only savings account rates. - [x] Various financial products including mortgages, derivatives, and savings accounts. - [ ] Only credit card interest rates. > **Explanation:** Euribor is used to set the rates for a variety of financial products, including mortgages, derivatives, and savings accounts. ### How many maturities does Euribor have? - [ ] One - [x] Five - [ ] Ten - [ ] Unlimited > **Explanation:** As of now, Euribor rates are available for five different maturities: 1 week, 1 month, 3 months, 6 months, and 12 months. ### Which institution primarily uses Euribor as a reference? - [x] European banks - [ ] American banks - [ ] Asian central banks - [ ] African development banks > **Explanation:** European banks primarily use Euribor as a benchmark for setting various interest rates. ### What does Euribor measure? - [ ] Inflation in the eurozone. - [x] The lending rate between eurozone banks. - [ ] The GDP growth rate in Europe. - [ ] The unemployment rate in Europe. > **Explanation:** Euribor measures the rate at which banks in the eurozone lend to each other. ### How does Euribor affect mortgages in Europe? - [ ] It doesn't affect mortgages. - [ ] It sets a maximum interest rate for all mortgages. - [x] It provides a benchmark interest rate for variable-rate mortgages. - [ ] It guarantees a fixed interest rate for mortgages. > **Explanation:** Euribor provides a benchmark interest rate for pricing variable-rate mortgages in Europe. ### Why is Euribor crucial for financial markets? - [ ] It is not crucial. - [x] It provides transparency and uniformity in lending rates. - [ ] It only affects a small portion of the market. - [ ] It is used to set government policy. > **Explanation:** Euribor provides transparency and uniformity in lending rates, making it crucial for the functioning of financial markets.

Thank you for exploring the fundamentals of the Euribor with us! Continue expanding your financial knowledge and strive for mastery in the ever-evolving world of finance.