August 27th, 2007, 8:56 am
LIBOR is the rate at which banks lend each other cash, for various periods of time. Key point here is that LIBOR is unsecured cash.The BOE base rate is a base rate, which determines the effective rate at which the Bank of England will lend you money (through the OMO process or the standing facility). However, the BoE lends secured, i.e. it will give you cash only in exchange for certain collateral.So, simplistically, LIBOR is a rate which not only incorporates the economy-wide tightness of money, as measured by the BoE rate, but also the availability of money in the interbank mkt. Hence, this whole credit crunch situation that people have been going on about...Cheers and hope this helps..