Prepared by Dr. Ade Banani, MMS CEO ee eee SSS el DEFINITION of 'Fisher Effect' ‘An economic theory proposed by economist Irving Fisher that deseribes the relationship between inflation and both real and nominal interest rates. The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. Therefore, real interest rates fall as inflation increases, unless nominal rates increase at the same rate as inflation. ‘Fisher Effect’ ‘The Fisher effect can be seen each time you go to the bank; the interest rate an investor has on a savings account is really the nominal interest rate. For example, if the nominal interest rate on a savings account is 4% and the expected rate of inflation is 3%, then money in the savings account is really growing at 1%. The smaller the real interest rate the longer it will take for savings deposits to grow substantially when observed from a purchasing power perspective. Definition of 'LIBOR' LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate that some of the world’s leading banks charge each other for short-term loans. It stands for IntercontinentalE xchange London Interbank Offered Rate and serves as the first step to calculating interest rates on various loans throughout the world. LIBOR is administered by the ICE Benchmark Administration (IBA), and is based on five currencies: U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Swiss frane (CHF), and serves seven different maturities: overnight, one week, and 1, 2, 3, 6 and 12 months. There are a total of 35 different LIBOR rates each business day. The most commonly ‘quoted rate is the three-month U.S. dollar rate. LIBOR (or ICE LIBOR) is the world’s most widely-used benchmark for short-term interest rates. It serves as the primary indicator for the average rate at which banks that contribute to the determination of LIBOR may obtain short-term loans in the London interbank market. Currently there are 11 to 18 contributor banks for five major currencies (USS, EUR, GBP, JPY, CHF), giving rates for seven different maturities. A total of 35 rates are posted every business day (aumber of currencies x number of different maturities) with the 3-month U.S. dollar rate being the most common one (usually referred to as the “current LIBOR rate”). LIBOR or ICE LIBOR's primary function is to serve as the benchmark reference rate for debt instruments, including government and corporate bonds, mortgages, student loans, eredit cards; as well as derivatives such as currency and interest swaps, among many other financial products. For example, take a Swiss franc-denominated Floating-Rate Note (or floater) that pays coupons, based on LIBOR plus a margin of 35 basis points (0.35%) annually. In this case, the LIBOR rate used is the one-year LIBOR plus a 35 basis point spread. Every year, the coupon rate is reset in order to match the current Swiss franc one-year LIBOR, plus the predetermined spread. If, for instance, the one-year LIBOR is 4% at the beginning of the year, the bond will pay 4.35%Prepared by Dr. Ade Banani, MMS ES fits par value at the end of the year. The spread usually increases or decreases depending on the credit worthiness of the institution issuing debt. Another prominent trait of LIBOR or ICE LIBOR is that it helps to evaluate the current state of the world’s banking system as well as to set expectations for future central bank interest rates. ICE LIBOR was previously known as BBA LIBOR until February |, 2014, the date on which the ICE Benchmark Administration (IBA) took over the Administration of LIBOR.London Interbank Offered Rate London Interbank Offered Rate atau lebih dikenal juga dengan singkatan LIBOR adalah kurs referensi harian dari suku bunga yang ditawarkan dalam pemberian pinjaman tanpa jaminan oleh suatu bank kepada bank lainnya di pasar uang London (atau pasar vang antar bank ) . Libor adalah kebalikan dari London Interbank Bid Rate (LIBID). Penggunaan Kurs suku bunga LIBOR digunakan secara lues sebagai suatu kurs referensi untuk suata instrumen keuangan seperti misalnya pada : + Kontak berjanaka huss atau lebih dikenal dengan nama forward rate agreement (FRA) * Perdagangan berjangka kurs bunga jangka pendek ‘Swap suku bunga Surat_pengakuan_huteng bunga_mengambang atau yang lebih dikenal dengan nama "floating rate note” (FRN) © Kre + agjustable rate mortgage yaitu penyesuaian suku bunga pada kredit_ pemilikan_rumah setelah jangka waktu tertentu yang pada umumnya menggunakan patokan kurs referensi * nilai tukar, khususnya US dollar (lihat pula Eurodollar). Produk-produk tersebut menggunakan dasar kurs pasar yang paling likuid dan aktif di dunia . Untuk Euro, kurs referensi yang biasanya digunakan adalah Puribor yang dikeluarkan oleh European Banking Federation ( federasi perbankan Eropa). Fitur teknis, LIBOR diterbitkan oleh Bi: jon (BBA) setiap hari setelah jam 11:00 waktu London yang merupakan rat rata suku bunga deposito antar bank dari beberapa bank terpili, ‘untuk jangka waktu pinjaman atara 1 malam hingga satu tahun. Suku bunga jangka pendek rmisalnya hingga 6 bulan adalah hampir mendekati cerminan kondisi pasar pada saat itu. Suku bunga pinjaman antar bank ini setiap harinya mengalami perutahan.Prepared by Dr. Ade Banani, MMS Kurs referensi yang dikeluarkan disamping untuk dollar Amerika (USD) juga untuk Pound terling, LIBOR juga merupakan referensi yang sangat berarti bagi mata uang lainnya termasuk Frane Swiss (CHF), Yen, dollar Kanada (CAD) and the Krone Denmark. Derivatif yang mengacu pada LIBOR Kontrak Eurodollar Kontrak Eurodollar pada perdagangan di Chicago Mercantile Exchange (bursa berjangka Chicago) adalah didasarkan pada kurs LIBOR pinjaman USD dengan jangka waktu 3 bulan . Ini adalah Kurs bunga jangka pendek yang paling laku diperdagangkan dalam bursa_berjangka. Untuk jangka waktw yang lebih pendek, kontrak berjangka jenis ini diperdagangkan di London Euronextliffe pada waktu Eropa dan di Singapore Exchange pada waktu Swap suku bunga Swap suku bunge atau Jmierest rate swaps yang mengacu pada kurs LIBOR jangka pendek saat ini diperdagangkan pada pasar uang antar bank untuk masa jatuh tempo hingga diatas 50 tahun. Suku bunga "LIBOR 5 tahun" merujuk pada kurs swap 5 tahun yang dipertukarkan dengan kurs swap LIBOR dari 3 atau 6 bulan.