The Global Financial System Is A Web Of Connections

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Srdan Vujnovic Short Paper Assignment II: LIBOR The global financial system is a web of connections. It does not matter what country, ethnicity or religion a person is. It does not matter if you are a democrat, republican, communist, socialist or anarchist. We all share this common bond – money. The following analysis will explain what LIBOR is, how manipulating LIBOR can have negative effects on the global economy, and what steps the global financial industry can take to ensure that a similar scandal never occurs again. I. Analysis of LIBOR and its manipulation What the major global banks decide to do can ultimately affect a farmer living in the Democratic Republic of Congo, thousands of miles away from the people that directly or indirectly affected his life. One of those ways that people across the globe are connected are through different financial rates, one of those rates being LIBOR. LIBOR stands for London Inter-Bank Offered Rate. It is one of many benchmarks that banking institutions use to set interest rates for lending between banks (Romano Peluso). LIBOR is an interest rate that banks charge each other for overnight, one-month, three-month, six-month and one year loans. It is published in five currencies which include the Swiss franc, the euro, the pound sterling, the Japanese yen and of course the dollar (Kimberly Amadeo). While most LIBOR-based contracts are linked to the 3-month rate, the majority of the lending happens overnight. Most banks have a 10% cash
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