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Glossary

EURIBOR

Category — Rates
The Euribor (acronym for Euro Inter Bank Offered Rate) is a reference rate for forward financial transactions carried out on the interbank market. It is the average interest rate of financial transactions in Euro between the main European banks (excluding, from the calculation, the lowest 15% and the highest 15% of the rates received) belonging to the European Money Markets Institute.

The main European banks are a group of 19 banks belonging to the European Union (active both in the Euro zone and elsewhere) that meet the high reliability requirements for short-term deposits and are able to lend money at competitive interests on the market. In addition to their characteristics of solvency and reliability, these banks were also chosen to best represent the geographical diversity of the European financial market and to provide a reliable representation of the reference rates over time.

The Euribor, in fact, coincides with the birth of the Euro (January 4, 1999), and was created in order to replace the various money market rates that were present in the individual countries of the European Union.

The value of the Euribor is updated daily: every morning, by 10:45 of each day the Target system is opened, the banks provide the data to a company (the Global Rata Set System Ltd) and by 11 am these data are reprocessed and published. This company simply deals with analyzing the data sent by the banks, processing them by making a simple average of the individual rates (excluding from the calculation, as mentioned, the lowest and highest 15% of the individual rates received in order to clean up the calculation) and finally publish the daily values of the different updated Euribor rates rounded to the third decimal place. The resulting numerical value corresponds to 70% of the original average and represents the Euribor at a given deadline.

In fact, there is no single Euribor rate, but, depending on the duration of the deposit, we can have several Euribor rates that will range from Euribor to 1 week to Euribor 1 year .

As with all interest in relation to their duration, the Euribor normally increases with the duration of the loan. All other things being equal, the 1-year Euribor will normally be higher than a 6-month Euribor which in turn will be higher than a 3-month Euribor and so on.

An example of a Bond with 1-month Euribor; An example of a Bond with 3-month Euribor; An example of a Bond with 6-month Euribor.

The importance of the Euribor

The Euribor is considered a very reliable indicator of the cost of money, but at the same time, it is very sensitive to market trends. Not infrequently, thanks to its characteristics, it anticipates the times by recording the changes in the cost of money even weeks before the European Central Bank makes the changes. As a rule, as the markets tend to rise or fall, the Euribor adjusts accordingly. For example, if an increase in interest rates is expected in 6 months, the 1-month and 3-month Euribor will not be affected very much, remaining almost indifferent, but the 6-month or 1-year Euribor will immediately tend upwards.
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