Further Understanding LIBOR

Posted by Bull Bear Trader | 4/26/2008 10:53:00 AM | , | 0 comments »

Nice article over at the A Dash of Insight blog regarding LIBOR and its recent issues (some of which we have discussed). Of interest is how much of the discussion / problems relate to currencies other than the dollar, and how the relevant discussion with regard to the U.S. dollars involves Eurodollars, which are dollar denominated deposits in banks outside the U.S. As is turns out, many banks cannot move between the two markets, reducing arbitrage, although U.S. investors can trade Eurodollar futures on the Chicago Mercantile Exchange. Finally, of interest is how the 6-month Eurodollar rate, which is often not referred to (the 3-month Eurodollars have the liquidity and are often used for hedging), are linked to adjustable rate mortgages (ARM), and are therefore the rate that U.S. investors should be paying more attention to as it relates to the housing market and its current and potential reset problems.