London Interbank Offer Rate. A measure of the borrowing rate for large international banks. The British Banker’s Association determines LIBOR daily for different currencies by surveying at least eight banks, asking at what rate they could borrow, dropping the top and bottom quartiles of the responses, and computing an arithmetic average of the remaining quotes. Since LIBOR is an average, there may be no actual transactions at that rate. Confusingly, LIBOR is also sometimes referred to as a lending rate. This is because a bank serving as a market maker in the interbank market will offer to lend money at a high interest rate (LIBOR) and borrow money at a low interest rate (LIBID). (The difference between LIBOR and LIBID is the bidask spread in the interbank market.) A bank needing to borrow will thus pay LIBOR, and a bank with excess funds will receive LIBID.