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Old 06-13-2012, 08:50 AM
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Mary Pat Campbell
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
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Stories over the possible manipulation of LIBOR have abounded in the financial press for some time now, but there has been precious little action. At stake is the integrity of $350 trillion of financial contracts that reference this key interest rate, not to mention the countless other financial products whose prices are ultimately linked back to LIBOR. The ripple effect of the potential mis-pricing of LIBOR is huge, ranging from complex swaps and derivatives traded among sophisticated investors to residential mortgages sold to ordinary households.

As stories like these continue to make the headlines, it is little wonder the financial industry continues to suffer from a lack of trust. If the allegations are true, then not only will they highlight widespread ethical shortcomings, they will have a financial impact on sophisticated investors and ordinary consumers alike — because of the centrality of LIBOR to the pricing of so many financial instruments and products. At this stage, it is too early to say what the financial ramifications might be, but it is possible that the legality of various contracts could be called into question if they are deemed to have been mis-priced. In other words, it might not be a “simple” case of market abuse of the type commonly found in the equity markets because the implications of LIBOR are so widespread.

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