QUESTION- Prelims-IAS – ECONOMICS MCQ-30
- interbank is the rate on which banks (commercial) borrow or lend from each other and not the central bank.
- If a bank is weak and unlikely to repay money on time then the rival banks will demand higher interest rate while lending money to that weak bank.
- Means, A bank has to pay a higher interest rate to borrow funds if other lending banks have less confidence in it.
- So, The rate each bank has to pay is in part a reflection of their rivals’ perception of its financial strength, effectively how much it is trusted.
- This means that the Libor/mibor rate gives an indication of the health of the wider banking sector.