Forex

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Usually, when a bank wants to make a loan for liquidity needs it has two options: either borrow money from the central-bank, through the open market operations, or call another bank to lend money at the LIBOR rate. The London Inter-bank Offered Rate or LIBOR is the reference rate at which banks lend money each other. A major distinction between those two would be that banks need collateral in order to access money from the central bank, while there is no such need when accessing funds from a fellow bank. This would imply that money accessed through the LIBOR rate, would be more expensive (a higher interest rate) because the loans are not secured.

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