London Inter Bank Mean Rate (LIMEAN)

What is the London Inter Bank Mean Rate (LIMEAN)?

The London Inter Bank Mean Rate (LIMEAN) is a calculated rate that represents the average of the bid (buying) and offer (selling) rates that major banks quote in the London interbank market. This rate is an important financial indicator used as a reference for setting various interest rates and pricing products, such as loans and derivatives.

Examples of LIMEAN Application

1. Loan Agreements: Financial institutions might set loan interest rates based on the LIMEAN, adding a margin to the average rate to determine the final interest rate for borrowers.
2. Derivative Pricing: Derivative contracts such as interest rate swaps might use the LIMEAN as a benchmark to determine the fixed or floating payment leg of the swap.
3. Interest Rate Products: Banks and other financial entities might offer products like savings accounts or certificates of deposit with interest rates pegged to LIMEAN.

Frequently Asked Questions about LIMEAN

Q1: How is LIMEAN different from LIBOR?

• A1: While both LIMEAN and LIBOR pertain to interbank loan rates in London, LIBOR represents the average rate at which banks are willing to lend to one another, whereas LIMEAN is the mean of bid and offer rates in the market.

Q2: Why is LIMEAN important?

• A2: LIMEAN provides a more rounded view of the interbank market since it includes both bid and offer rates, offering insight into market dynamics and volatility.

Q3: Who uses LIMEAN?

• A3: Financial institutions, investment firms, corporate treasurers, and other market participants use LIMEAN as a benchmark for setting interest rates and pricing various financial products.

Q4: Is LIMEAN still frequently used?

• A4: While LIMEAN is still utilized in some contexts, other benchmarks such as LIBOR and newer ones like SOFR (Secured Overnight Financing Rate) have gained prominence.

Related Terms

• LIBOR (London Interbank Offered Rate): The rate at which major banks in London are willing to lend to one another.
• SOFR (Secured Overnight Financing Rate): A benchmark interest rate for dollar-denominated derivatives and loans that is based on transactions in the Treasury repurchase market.
• Euribor (Euro Interbank Offered Rate): The rate at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market.
• Prime Rate: The interest rate that commercial banks charge their most creditworthy customers.

Online References

1. Investopedia: London Interbank Offered Rate (LIBOR)
2. Federal Reserve Bank of New York: Secured Overnight Financing Rate (SOFR)
3. European Money Markets Institute: Euribor

Suggested Books for Further Studies

1. “Interest Rate Markets: A Practical Approach to Fixed Income” by Siddhartha Jha
   • A comprehensive guide to understanding interest rates, including benchmarks like LIMEAN.
2. “Fixed Income Analysis” by Frank J. Fabozzi
   • Detailed exploration of fixed income securities and various interest rate benchmarks.
3. “Interest Rate Swaps and Other Derivatives” by Howard Corb
   • Insight into the use of interest rate benchmarks in derivative markets.

Accounting Basics: “London Inter Bank Mean Rate” Fundamentals Quiz

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