LIBOR stands for London Interbank Offered Rate. Its the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London for one month. It is a standard financial index commonly used as a benchmark for adjustable rate mortgages. LIBOR rates tend to move in closer concert with global interest rate benchmarks, such as the Fed funds rate, and is a more volatile index than the Monthly Treasury Average.

London is considered a politcally neutral location for dollars and transactions that take place outside the U.S. Reserve regulations or government control. The LIBOR is tied to domestic U.S. rates and tries to anticipate any tightening or loosening of credit conditions the Federal Reserve Bank may make in the future. LIBOR is a rough equivalent of the Federal Funds Rate in the U.S. but is set by the market instead of a government entity.