Investments, tenth edition

  Brokers’ Calls 

 Individuals who buy stocks on margin borrow part of the funds to pay for the stocks from 

their broker. The broker in turn may borrow the funds from a bank, agreeing to repay the 

bank immediately (on call) if the bank requests it. The rate paid on such loans is usually 

about 1% higher than the rate on short-term T-bills.  

  The LIBOR Market 

 The     London Interbank Offered Rate (LIBOR)    is the rate at which large banks in 

London are willing to lend money among themselves. This rate, which is quoted on dollar-

denominated loans, has become the premier short-term interest rate quoted in the European 

money market, and it serves as a reference rate for a wide range of transactions. For exam-

ple, a corporation might borrow at a floating rate equal to LIBOR plus 2%. 

 LIBOR interest rates may be tied to currencies other than the U.S. dollar. For example, 

LIBOR rates are widely quoted for transactions denominated in British pounds, yen, euros, 

and so on. There is also a similar rate called EURIBOR (European Interbank Offered Rate) 

at which banks in the euro zone are willing to lend euros among themselves. 

 LIBOR is a key reference rate in the money market, and many trillions of dollars of 

loans and derivative assets are tied to it. Therefore, the 2012 scandal involving the fixing 

of LIBOR deeply shook these markets. The nearby box discusses those events.