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.QUIESTION, SEARCH AND ANSWER, IS REVEALED AS COMPILE FOR ALL MY CLASS FRIENDS. What is Libor?

Answers to interest-rate questions Posted 9/28/2008 4:45 PM | Comment | Recommend By Alan Zibel, AP Business Writer WASHINGTON It goes by a clumsy acronym, and its inner workings may be difficult to understand, but a key interest rate set in London every business day is having a dramatic impact on the U.S. and global economies as the credit crisis has intensified. Here are some questions and answers to help make sense how this interest rate, known as Libor, may affect your household: Q. What is Libor? A. Libor, an acronym for the London Interbank Offered Rate, is the interest rate at which large international banks are willing to lend each other money on a short-term basis. It's calculated every business day in 10 currencies and 15 terms, ranging from overnight to one year. Q. How big is its influence? A. Rates on about $10 trillion in corporate loans, mortgages and student loans worldwide are pegged to Libor, usually with a markup of several percentage points, according to University of Edinburgh professor Donald Mackenzie. The total amount of financial contracts tied to Libor, particularly interest-rate swaps exceeds $300 trillion or $45,000 for every person in the world. The rate ended up being calculated in London after President Lyndon Johnson tried to stop dollars from moving overseas in the 1960s. In response, a so-called "Eurodollar" market developed in dollar-denominated deposits held by foreign banks. The calculation of Libor is so important to the world's financial system that its coordinators have set up dedicated backup phone lines so the number can still be figured out if there's a terrorist attack, Mackenzie wrote in a recent paper in the London Review of Books. Q. How does it get set? A. Every business day, more than a dozen banks report to the British Bankers Association their estimates of the rates at which they are able to borrow money from other banks. After discarding the highest and lowest rates reported, BBA staffers average the rest and report the figures daily after 11 a.m. London time. This system, in place since the mid-

1980s, has generally worked well, Mackenzie said in an interview. Without a globally accepted benchmark for interest rates there would be "chaos and confusion," he said. Q. OK, so what's the problem? A. In more normal times, Libor rates usually track about half a percentage point above the yields on U.S. government debt with comparable maturities. But that gap has widened considerably in recent weeks, increasing borrowing costs for millions. On Friday, the sixmonth Libor rate was 2.3 percentage points above comparable Treasury bills. A year ago, the difference was 1.2 percentage points. Q. Why is that happening? A. With major institutions such as Washington Mutual Inc. and Lehman Brothers failing, banks are extremely wary about lending money to each other because they are worried about who will be the next to fail. "The level of trust ... has just evaporated," said John Silvia, chief economist with Wachovia Corp. Q. So how does it affect my life? A. More than half of U.S. adjustable rate home loans are tied to Libor, so a recent increase in this benchmark rate mean monthly mortgage payments will rise for affected homeowners if the rise is sustained. A typical adjustable rate home loan will adjust based on the six-month Libor, plus 2 to 3 percentage points. Plus, many home equity lines of credit, small business loans and student loans also use Libor as an index. Student loans, for example, can be set based on the three-month Libor rate plus, say, 4 percentage points or the one month Libor rate, plus 9 percentage points. Q. Why are so many U.S. home loans tied to these rates? A. Adjustable-rate mortgages used to be based on the yields of short-term government debt. But as international money flowed into the U.S. mortgage market this decade, investors in mortgage debt wanted to use a rate "that was a little more indicative of their cost of doing business in global markets," said Keith Gum binger, a senior vice president with financial publisher HSH Associates. Q. How does it impact the economy? A. Because Libor's elevated state has pushed up rates on adjustable mortgages as well as rates on many commercial loans, that has blunted the effectiveness of the recent interestrate cuts enacted by Federal Reserve policymakers in an effort to stimulate the economy. It also means consumers, who account for more than two-thirds of total U.S. economic activity, can find their access to credit restricted. "Consumers are going to be retrenching and trying to cut down their spending," said BNP Paribas economist Anna Piretti.

Q. What does it mean for borrowers in danger of losing their homes to foreclosure? A. Borrowers with high-rate adjustable mortgages are already defaulting in huge numbers. While rates for Libor are rising, they are still about 1.24 percentage points lower than a year ago. Rising interest rates are not good for borrowers facing foreclosure, said Jay Brinkmann, chief economist with the Washington-based Mortgage Bankers Association. But, he added, "it's not clear that the magnitude is going to be that great unless it goes up even more." Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Posted 9/28/2008 4:45 PM To report corrections and clarifications, contact Reader Editor Brent Jones. For publication consideration in the newspaper, send comments to letters@usatoday.com. Include name, phone number, city and state for verification. Guidelines: You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. Read

CNF/ CFT? The term CNF or CFR (Cost and Freight shipping terms) mean seller pay for the freight and cost to the destinated port. It means that the seller pays for transportation to the Port of Loading (POL), loading and freight. The buyer pays for the insurance and transportation of the goods from the Port of Discharge (POD) to his factory. Answered by 'angel" in Y.

What is the meaning of "CIF,CNF & FOB"?


Please tell me the exact meaning of " Price Terms: CNF,CIF and FOB."I want to import some parts from china, but i can't understand the exact meaning of above words so please help me. I export to China about twice a week. I am not at work at the minute or I would get the answers out of my book. I normally use CPT for most of my exports. CPT means Carriage Paid To. Normally used in "CPT SHA" meaning "Carriage paid to Shanghai Airport" FOB. A trade term requiring the seller to deliver goods on board a vessel designated by the buyer This normally only means they pay to the boat and get it on board. From that point on it is your cost. CNF includes all freight charges either with insurance (CIF) or not with insurance (CNF) There are many sites on the net to find these terms. Only a hand full are normally used but the book I have at work has thousands. What is it that you are having shipped from China? The best way to do it is just send it FOB by UPS. Or call a freight broker like Teamworld Wide UPS or Fed-X. Their fees are really not that bad and it will have to come through one of them anyway to clear US Customs. The only way that you can do it by your self with a broker would be to go get it your self and bring it back with you. I export to China about twice a week. I am not at work at the minute or I would get the answers out of my book. I normally use CPT for most of my exports. CPT means Carriage Paid To. Normally used in "CPT SHA" meaning "Carriage paid to Shanghai Airport" FOB. A trade term requiring the seller to deliver goods on board a vessel designated by the buyer This normally only means they pay to the boat and get it on board. From that point on it is your cost. CNF includes all freight charges either with insurance (CIF) or not with insurance (CNF) There are many sites on the net to find these terms. Only a hand full are normally used but the book I have at work has thousands.

What is it that you are having shipped from China? The best way to do it is just send it FOB by UPS. Or call a freight broker like Teamworld Wide UPS or Fed-X. Their fees are really not that bad and it will have to come through one of them anyway to clear US Customs. The only way that you can do it by your self with a broker would be to go get it your self and bring it back with you. FOB: Free on board, the seller has the responsibility to deliver the goods to a set point. Usually, once the cargo pases the ships rail, it's off their hands. CIF: Cost of insurance and cargo, the seller has to provide you with all the doc's that's required for the buyer to claim the goods once delivered. CNF: Cost and freight (often uses CFR instead). Only thing different is the seller doesn't have to provide the insurance for the cargo during the transport.

Back-To-Back Letters Of Credit


Two letters of credit (LCs) used together to help a seller finance the purchase of equipment or services from a subcontractor. With the original LC from the buyer's bank in place, the seller goes to his own bank and has a second LC issued, with the subcontractor as beneficiary. The subcontractor is thus ensured of payment upon fulfilling the terms of the contract. Investopedia Says: Like most LCs, back-to-back LCs are used primarily in international transactions, with the first LC serving as collateral for the second.

Back-To-Back Letters of Credit


Top Two letters of credit, one in favor of the buyer's agent and one financing the seller. A back-to-back credit is created when an exporter holding an irrevocable Letter of Credit persuades the buyer's bank (the advising bank) to open a second credit in favor of the merchandise supplier. The two credits are identical in all respects, except that the supplier becomes the Beneficiary of the back-to-back credit, and the amount of the second credit is less than the original export credit. The difference is the import agent's commission.

Deferred payment letter of credit (L/C)


Definition
That is paid a fixed number of days after shipment or presentation of prescribed documents. It is used where a buyer and a seller have close working relationship because, in effect, the seller (beneficiary of the L/C) is financing the purchase by allowing the buyer a grace period for payment. It differs from a sight draft or time draft in that no drafts are involved but the payment is guaranteed on the stated date. However, there being no draft, the beneficiary party's ability to discount or sell his or her right to payment is restricted. Also called usance letter of credit. See also red clause letter of credit.

Planning a Successful Product Launch

Now that your company has a finished product ready to hit the market, a gargantuan, dreaded task remains the product launch. For some successful companies it appears lightweight and effortless; for others, it is clunky, ill-timed and dead on arrival at huge costs. How can you make sure your product hits the ground running and captures the intended target audience?

Photo by Matthew Simantov

Look Before You Leap


Here are some major issues to consider before launching your newly finished product:

Has the market demand changed since the initial development of your product? This is always a major concern to technology companies, where fast shifting currents can change a companys fortune on a dime. Market research is absolutely necessary at this stage. Is your product ready and thoroughly tested? Often times a product may sell like hot cakes at first but crash due to poor reviews on the web and print media. Be aware that the Internet can be your best friend or worst enemy in this regard. Are your margins from your established price range high enough to be profitable? Is your product a high-margin, low-volume product, or a low-margin, highvolume product? Companies like Apple, Microsoft and Intel have built fortunes on the lucrative high-margin, high-volume market. Have the costs of the products components changed since your initial planning phase? Will there be any problem procuring the necessary amount of components? How does the new product impact your current line of products? Will your new product cannibalize a stable, profitable product? Cannibalization can also occur when a company launches a product that directly competes with its own partnered products, as Google did with its Nexus One phone, which was positioned directly, in self-defeating manner, against other Android phones. Has your company mapped out the proper PR and advertising road map for your new product? Nothing botches a product launch more than a confused lack of focus. Everyone remembers Microsofts embarrassing launch and subsequent failure of its Kin mobile devices as a prime example. Have you thoroughly researched your competitors similar products and their release schedules? The timing of a product launch is crucial to success. This is highly visible in the launch cycle of video game consoles, where major players such as Microsoft, Sony and Nintendo continually attempt to outpace their peers by predicting the end of a generations cycle. Does your company have a stop loss and exit strategy if the product launch fails? As with the cited examples of the Google Nexus and Microsoft Kin, both companies pulled the plug on their losing bets before their losses became too steep. For a small company, placing all their eggs in one basket can be fatal.

Advertising, Buzz and Hype


Now that your product is ready to be thrown into the open market, you need to build up anticipation through proper advertising and promotion. Here are some strategies your company can take to increase the buzz and hype surrounding your product.

For most small companies, the tried and true route of trade shows is still the most direct route to promote a new product. The hands-on demo approach and the direct, face-to-face interactions help build and solidify a loyal client base. Decide your companys advertising budget. You can go as high as professional television advertisements or as low as simple Internet click-thru ads, or anything in between. Your advertising team should have a good grasp of the target audience and the most appropriate approach. Rely on the free advertising of viral media and social networks. Simple viral ads on Youtube or Twitter regarding a new product can increase your following exponentially if timed properly. Make sure your website has been properly updated to promote the new product, and clearly visible on your front page. If you are promoting a product that can be reviewed on websites and blogs, send out product samples to gain free publicity. However, take note that if your product compares poorly to its peers, this can backfire. Well-advised publicity stunts can attract media attention and gain loads of free press. However, there are many accounts of publicity stunts gone wrong, due to poor taste, a controversial approach, or police involvement. Be smart and gauge the appropriateness and safety of such stunts.

Readying the Launch Pad


Now that all the messy stuff is out of the way, you have to make sure your staff is ready to field the product launch.

Make sure your staff has been properly trained in the new products information, and ready to field any questions. Is your company ready to fill the amount of expected orders in a timely manner? Are your production facilities up to the task? Will last minute, market-wide fluctuations change your projected earnings? Commodity prices can have a ripple effect through all major sectors. Are all your distribution channels clear and ready?

Once these last preparations have been made, cross your fingers and introduce your product to the public, keeping a finger on the pulse of your sales. Be prepared to cut your losses if your product fails, or to renovate and expand your product line if it is successful. Always map out your future product tree several generations in advance. After all, business, like chess, is a game where the winner plans the most moves ahead.

About the author

Leo Sun is long-time market follower and finance writer. He regularly contributes to the BusinessDictionary Articles and also to the InvestorGuide.com Stock of the Day analysis. View all posts by Leo Sun

Letter of credit
From Wikipedia, the free encyclopedia

After a contract is concluded between buyer and seller, buyer's bank supplies a letter of credit to seller.

Seller consigns the goods to a carrier in exchange for a bill of lading.

Seller p bill of lading for payment from buyer's bank. Buyer's bank exchanges bill of lading for payment from the buyer.

Buyer provides bill of lading to carrier and takes delivery of goods. A standard, commercial letter of credit (LC[1]) is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking. The letter of credit can also be source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in

international trade transactions of significant value, for deals between a supplier in one country and a customer in another. In such cases the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits applies (UCP 600 being the latest version).[2] They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment was insured against loss or damage in transit.

Terminology
Origin of the term
The English name letter of credit derives from the French word accreditation, a power to do something, which in turn is derivative of the Latin word accreditivus, meaning trust. This applies to any defense relating to the underlying contract of sale. This is as long as the seller performs their duties to an extent that meets the requirements contained in the letter of credit.[citation needed]

Types and related terms


Letters of credit (LC) deal in documents, not goods. The LC could be irrevocable or revocable. An irrevocable LC cannot be changed unless both the buyer and seller agree. Whereas in a revocable LC changes to the LC can be made without the consent of the beneficiary. A sight LC means that payment is made immediately to the beneficiary/seller/exporter upon presentation of the correct documents in the required time frame. A time or date LC will specify when payment will be made at a future date and upon presentation of the required documents.[citation needed] Negotiation means the giving of value for draft(s) and/or document(s) by the bank authorized to negotiate, viz the nominated bank. Mere examination of the documents and forwarding the same to the letter of credit issuing bank for reimbursement, without giving of value / agreed to give, does not constitute a negotiation.[clarification needed][citation needed]

Documents that can be presented for payment

To receive payment, an exporter or shipper must present the documents required by the letter of credit. Typically instead of presenting goods themselves, a document proving the goods were sent is presented instead. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin or place. Typical types of documents in such contracts might include:[citation needed]

Bill of Lading (ocean or multi-modal or Charter party), Airway bill, Lorry/truck receipt, railway receipt, CMC Other than Mate Receipt, Forwarder Cargo Receipt, Deliver Challan...etc

Insurance documents Insurance policy, or Certificate but not a cover note.

Legal principles governing documentary credits


One of the primary peculiarities of the documentary credit is that the payment obligation is abstract and independent from the underlying contract of sale or any other contract in the transaction. Thus the banks obligation is defined by the terms of the credit alone, and the sale contract is irrelevant. The defences of the buyer arising out of the sale contract do not concern the bank and in no way affect its liability.[3] Article 4(a) UCP states this principle clearly. Article 5 the UCP further states that banks deal with documents only, they are not concerned with the goods (facts). Accordingly, if the documents tendered by the beneficiary, or his or her agent, appear to be in order, then in general the bank is obliged to pay without further qualifications. The policies behind adopting the abstraction principle are purely commercial and reflect a partys expectations: firstly, if the responsibility for the validity of documents was thrown onto banks, they would be burdened with investigating the underlying facts of each transaction and would thus be less inclined to issue documentary credits as the transaction would involve great risk and inconvenience. Secondly, documents required under the credit could in certain circumstances be different from those required under the sale transaction; banks would then be placed in a dilemma in deciding which terms to follow if required to look behind the credit agreement. Thirdly, the fact that the basic function of the credit is to provide the seller with the certainty of receiving payment, as long as he performs his documentary duties, suggests that banks should honour their obligation notwithstanding allegations of misfeasance by the buyer.[4] Finally, courts have emphasised that buyers always have a remedy for an action upon the contract of sale, and that it would be a calamity for the business world if, for every breach of contract between the seller and buyer, a bank were required to investigate said breach. The principle of strict compliance also aims to make the banks duty of effecting payment against documents easy, efficient and quick. Hence, if the documents tendered

under the credit deviate from the language of the credit the bank is entitled to withhold payment even if the deviation is purely terminological.[5] The general legal maxim de minimis non curat lex has no place in the field of documentary credits.

The price of letters of credit


All the charges for issuance of Letter of Credit, negotiation of documents, reimbursements and other charges like courier are to the account of applicant or as per the terms and conditions of the Letter of credit. If the letter of credit is silent on charges, then they are to the account of the Applicant. The description of charges and who would be bearing them would be indicated in the field 71B in the Letter of Credit.[citation needed]

Legal basis
Although documentary credits are enforceable once communicated to the beneficiary, it is difficult to show any consideration given by the beneficiary to the banker prior to the tender of documents. In such transactions the undertaking by the beneficiary to deliver the goods to the applicant is not sufficient consideration for the banks promise because the contract of sale is made before the issuance of the credit, thus consideration in these circumstances is past. In addition, the performance of an existing duty under a contract cannot be a valid consideration for a new promise made by the bank: the delivery of the goods is consideration for enforcing the underlying contract of sale and cannot be used, as it were, a second time to establish the enforceability of the bank-beneficiary relation.
[citation needed]

Legal writers have failed to satisfactorily reconcile the banks undertaking with any contractual analysis. The theories include: the implied promise, assignment theory, the novation theory, reliance theory, agency theories, estoppels and trust theories, anticipatory theory, and the guarantee theory.[6] Davis, Treitel, Goode, Finkelstein and Ellinger have all accepted the view that documentary credits should be analyzed outside the legal framework of contractual principles, which require the presence of consideration. Accordingly, whether the documentary credit is referred to as a promise, an undertaking, a chose in action, an engagement or a contract, it is acceptable in English jurisprudence to treat it as contractual in nature, despite the fact that it possesses distinctive features, which make it sui generis. A few countries including the United States (see Article 5 of the Uniform Commercial Code) have created statutes in relation to the operation of letters of credit. These statutes are designed to work with the rules of practice including the UCP and the ISP98. These rules of practice are incorporated into the transaction by agreement of the parties. The latest version of the UCP is the UCP600 effective July 1, 2007.[7] The previous revision was the UCP500 and became effective on 1 January 1994. Since the UCP are not laws, parties have to include them into their arrangements as normal contractual provisions. For more information on legal issues surrounding letters of credit, the Journal of International

Commercial Law at George Mason University's School of Law published Volume 1, Issue 1 exclusively on the topic.

[International Trade Payment methods


This article is in a list format that may be better presented using prose. You can help by converting this article to prose, if appropriate. Editing help is available.
(January 2011)

Advance payment (most secure for seller)

Where the buyer parts with money first and waits for the seller to forward the goods

Documentary Credit (more secure for seller as well as buyer)

Subject to ICC's UCP 600, where the bank gives an undertaking (on behalf of buyer and at the request of applicant) to pay the shipper (beneficiary) the value of the goods shipped if certain documents are submitted and if the stipulated terms and conditions are strictly complied with. Here the buyer can be confident that the goods he is expecting only will be received since it will be evidenced in the form of certain documents called for meeting the specified terms and conditions while the supplier can be confident that if he meets the stipulations his payment for the shipment is guaranteed by bank, who is independent of the parties to the contract.

Documentary collection (more secure for buyer and to a certain extent to seller)

Also called "Cash Against Documents". Subject to ICC's URC 525, sight and usance, for delivery of shipping documents against payment or acceptances of draft, where shipment happens first, then the title documents are sent to the [collecting bank] buyer's bank by seller's bank [remitting bank], for delivering documents against collection of payment/acceptance

Direct payment (most secure for buyer)

Where the supplier ships the goods and waits for the buyer to remit the bill proceeds, on open account terms.

Risk situations in letter-of-credit transactions


This article is in a list format that may be better presented using prose. You can help by converting this article to prose, if appropriate. Editing help is available.
(January 2011)

Fraud Risks

The payment will be obtained for nonexistent or worthless merchandise against presentation by the beneficiary of forged or falsified documents. Credit itself may be forged.

Sovereign and Regulatory Risks

Performance of the Documentary Credit may be prevented by government action outside the control of the parties.

Legal Risks

Possibility that performance of a Documentary Credit may be disturbed by legal action relating directly to the parties and their rights and obligations under the Documentary Credit

Force Majeure and Frustration of Contract

Performance of a contract including an obligation under a Documentary Credit relationship is prevented by external factors such as natural disasters or armed conflicts

Risks to the Applicant


Non-delivery of Goods Short Shipment Inferior Quality Early /Late Shipment Damaged in transit Foreign exchange Failure of Bank viz Issuing bank / Collecting Bank

Risks to the Issuing Bank


Insolvency of the Applicant Fraud Risk, Sovereign and Regulatory Risk and Legal Risks

Risks to the Reimbursing Bank

no obligation to reimburse the Claiming Bank unless it has issued a reimbursement undertaking.

Risks to the Beneficiary


Failure to Comply with Credit Conditions Failure of, or Delays in Payment from, the Issuing Bank Credit Issued by Party other than Bank

Risks to the Advising Bank

The Advising Banks only obligation if it accepts the Issuing Banks instructions is to check the apparent authenticity of the Credit and advising it to the Beneficiary

Risks to the Nominated Bank

Nominated Bank has made a payment to the Beneficiary against documents that comply with the terms and conditions of the Credit and is unable to obtain reimbursement from the Issuing Bank

Risks to the Confirming Bank

If Confirming Banks main risk is that, once having paid the Beneficiary, it may not be able to obtain reimbursement from the Issuing Bank because of insolvency of the Issuing Bank or refusal of the Issuing Bank to reimburse because of a dispute as to whether or not payment should have been made under the Credit

Other Risks in International Trade


A Credit risk risk from change in the credit of an opposing business. An Exchange risk is a risk from a change in the foreign exchange rate.

A Force majeure risk is 1. a risk in trade incapability caused by a change in a country's policy, and 2. a risk caused by a natural disaster.

Other risks are mainly risks caused by a difference in law, language or culture. In these cases, the cargo might be found late because of a dispute in import and export dealings.

A remarkable plant
It isn't only linen that benefits from the versatile flax plant. No part of the plant is wasted and it is used in many different industries. Although some of its uses have been known for centuries, it is developing a new fame as a material that can replace some chemically produced products. As such, it is turning up in some surprisingly diverse products.

Seeds from the flax plant are crushed to produce linseed oil for artists, cabinet makers and wooden furniture restorers. The USA is the main producer of this oil; none is from Ireland. Flax seed oil is popular as a herbal supplement (its high omega content is thought to reduce cholestrol) and to help those with eczema and other skin problems. Flax seeds are also fed to cattle and chicken as a nutritional boost. Fishermen have long used flax fibres to create fishing nets. And string and rope are also made from them.

Flax plant seeds


Biodegradable hanging basket liners and weed suppressant matting are a relatively new addition to the flax plant portfolio. Paper money ie banknotes are produced from pulped flax fibres. A recent development has been the production of loft insulation from flax fibres. Much better for the environment than the synthetic version. Another new use for the absorbent fibres is in manufacture of animal litter and stable bedding. The very latest use of the flax plant is in the auto industry. Audi, BMW, Chrysler and Daimler-Benz are leading the way in using flax (and hemp) for some non-structural car components such as door panels, ledges and matting. Even flax dust, created during the manufacture of secondary products, is put to good use in briquettes used for burning.

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Get Started Next Steps Census Records Forms & Charts Tree templates Civil Registration Church Records Societies & Groups Place of Origin Land & Property Northern Ireland Emigration Home News & Issues US EcoDefinition: LIBOR is the interest rate that banks charge each other for onemonth, three-month, six-month and oneyear loans. LIBOR is an acronym for London InterBank Offered Rate. This rate is that which is charged by London banks, and is then published and used as the benchmark for bank rates all over the world. Retted flax stems

From flax plant to Irish Linen work for all the family
Linen begins life as the flax plant, a pretty trueblue flowering plant, which is harvested in August, 100 days after sowing. Traditionally, the process involved many members of a family. Men were usually responsible for seeding while women took charge of weeding as the flax plants grew. Keeping weeds to a minimum not only encouraged vigorous growth, it also meant the stem was more likely to grow upright.

At about one metre in height, the plant was ready for harvest, an operation that usually involved all adults and older children. Care had to be taken in pulling the flax from the ground so that every inch of the stem would be retained. These stems were bundled together into sheaves (called beets) before being carried in carts to fallow fields where women and girls would spread them into stacks called stooks and leave them to dry in the sun. When they had dried, the seeds were removed and saved either for next year's planting, or to make linseed oil or cattle feed. (See the left-hand column for details of how this remarkable plant is used as an important component in many day-to-day products.)

LIBOR is compiled by the British Bankers Retting Association (BBA), and is published 11 am each day in conjunction with Reuters. It is comprised from a panel of banks representing countries in each currency.

5 steps of yarn production

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Mill work dangerous and unhealthy


In the Irish Linen Homelands of Northern Ireland (chiefly around Lisburn, Belfast, Banbridge and Cookstown), the work of transforming the flax plant into yarn and then into beautiful cloth, eventually moved into huge mills.

Clonakilty's linen market


Although Northern Ireland became known as the Linen Homelands, the flax plant was grown in other parts of the island and there were many big mills outside Ulster. In the early 1800s, one of the largest, certainly the largest in Munster, was in Clonakilty, co Cork. It was owned by an Englishman called Dr Elmore and located in Mill Street. Clonakilty already had a successful association with linen production and even by the 1740s considerable quantities of coarse yarn were being sold at the Friday market. As sales grew, a dedicated Linen Hall was built and by the early 1820s the industry employed more than 10,000 people in the surrounding districts.

Weekly sales amounted to over 1000 in Clonakilty

Pigot's Directory of 1824 contained the following comments about the local industry: "The description of goods manufactured here is peculiar to the county of Cork and called vitries and twills; these are from three quarters to a yard wide and the average in price is from 41/2d to 8d per yard. "The market is regularly attended by purchasers from Cork and Bandon who buy on commission for the English and Scotch houses; and the weekly sales are computed at

upwards of 1,000. The market is superintended by Mr.Henry Franks, senior seal master." It was also noted that apart from Dr Elmore's large factory, most local trade was carried on by persons "of small capital", employing one to four looms. These are some of the job titles given to mill workers right up to the 20th century: Ap iron turner, Carder, Carding master, Carpenter, Cleaner, Doffer, Drawer, Doubler, Fitter, Flax looser, Hackler, Layer, Lorry driver, Oiler, Packer, Piecer, Reeler, Ring oiler, Rover, Screwer, Spinner, Spreader, Stormean, Sweeper, Tenter, Tippler, Tow baler, Trucker, Winder, Yarn boy, Yarn counter, Yarn tucker. For most factory and mill employees, the working week consisted of eleven and a half or twelve hours (including meal breaks) from Monday to Friday plus a half day of six hours on Saturday. In terms of holiday, workers could take two days for Christmas, two days at Easter and two more days in July. Holiday breaks were not paid. These terms of employment applied to most staff over the age of thirteen. Children were legally permitted to work at the mills from about the age of ten years on a part-time basis. They usually spent alternate days at the mill, typically working as doffers (replacing full yarn bobbins on the spinning frames with empty ones), and in the classroom. When they first started work, many suffered what became known as 'mill fever' before they adjusted to the high temperatures, damp or dusty environments, noise and exhaustion. The scutching room was one of the most unhealthy because the air was filled with dry flax plant dust called 'pouce' and workers could not avoid inhaling it. As it settled in the lungs, it caused shortness of breath and many bronchial complaints. The hackling and carding rooms were the most dangerous because the machines were not properly guarded. Facial and hand injuries, ranging from lacerations to mutilations, were the most common but fatal accidents were also a regular occurrence. One of the dirtiest places to work in the mill was the spinning room. Temperatures were hot and humid and workers tended to be barefoot. In a study into the health of mill workers in 1852, it was found that spinning room workers were suffering from 'onychia and other diseases of the great toe nail' as a result of their feet getting wet with water impregnated with brass and other metals. They were also found to suffer skin problems. In the weaving shed, noise and humidity were the main discomforts to be endured. The noise was caused by the carding machines, the looms and shuttles, while the dampness and heat was fed in to create the conditions needed for weaving yarn. But at least weavers had the satisfaction of earning higher wage rates than other mill workers.

With such unhealthy work, the mortality rate in the spinning mills and weaving factories was high. In the late 19th century, the average working life was 16.8 years. Bleachers worked at the bleachworks where serious accidents and incidences of fever were fewer than in the spinning A bleaching green in co Antrim mills and weaving factories. Even so, the work was backbreaking. Longer summer daylight hours meant bleachers often worked from 5.30am to 6pm Monday to Friday and 5.30am to 3pm on Saturdays. Less than two hours were allowed for breakfast and dinner. These long days helped to subsidise the shorter working hours of winter.

Spinning Wheel Entitlement List 1796


In 1796, the Irish Linen Board published its Spinning Wheel Entitlement List (also known as the Flax Growers Bounty or the Irish Flax Growers List), one of several lists created in response to special initiatives by the Government to encourage the production of linen. Nearly all these initiatives involved giving away spinning wheels and looms to individuals. This list was no exception. It includes the names of persons who had cultivated a specified acreage of flax plant. Those who had planted one acre were awarded four spinning wheels while five acres of flax plant was rewarded with a loom. Due to the dearth of pre-1800s nationwide resources for genealogists, this 1796 list is worth consulting as part of your family history research even though it contains no mention of townlands. It is arranged by civil parish (and occasionally only the barony) and contains the names of nearly 60,000 individuals in all counties of Ireland except Dublin and Wicklow who had sown the required acreages of flax plant.

A remarkable plant
It isn't only linen that benefits from the versatile flax plant. No part of the plant is wasted and it is used in many different industries. Although some of its uses have been known for centuries, it is developing a new fame as a material that can replace some chemically produced products. As such, it is turning up in some surprisingly diverse products.

Seeds from the flax plant are crushed to produce linseed oil for artists, cabinet makers and wooden furniture restorers. The USA is the main producer of this oil; none is from Ireland.

Flax seed oil is popular as a herbal supplement (its high omega content is thought to reduce cholestrol) and to help those with eczema and other skin problems. Flax seeds are also fed to cattle and chicken as a nutritional boost. Fishermen have long used flax fibres to create fishing nets. And string and rope are also made from them.

Flax plant seeds


Biodegradable hanging basket liners and weed suppressant matting are a relatively new addition to the flax plant portfolio. Paper money ie banknotes are produced from pulped flax fibres. A recent development has been the production of loft insulation from flax fibres. Much better for the environment than the synthetic version. Another new use for the absorbent fibres is in manufacture of animal litter and stable bedding. The very latest use of the flax plant is in the auto industry. Audi, BMW, Chrysler and Daimler-Benz are leading the way in using flax (and hemp) for some nonstructural car components such as door panels, ledges and matting. Even flax dust, created during the manufacture of secondary products, is put to good use in briquettes used for burning.

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Definition: LIBOR is the interest rate that banks charge each other for one-month, threemonth, six-month and one-year loans. LIBOR is an acronym for London InterBank Offered Rate. This rate is that which is charged by London banks, and is then published and used as the benchmark for bank rates all over the world.

LIBOR is compiled by the British Bankers Association (BBA), and is published 11 am each day in conjunction with Reuters. It is comprised from a panel of banks representing countries in each currency. LIBOR is also used to guide banks in setting rates for adjustable-rate loans, including interest-only mortgages and credit card debt. Lenders typically add a point or two to create a profit.

LIBOR Goes Haywire in 2008


LIBOR is usually a few tenths of a point above the Fed Funds rate. However, in April 2008, the 3-month LIBOR rose to 2.9% even as the Federal Reserve dropped its rate to 2%. Banks panicked when the Fed bailed out Bear Stearns, which went belly-up thanks to investments in subprime mortgages. Through the summer of 2008, banks wouldn't lend to each other, fearing they would inherit each others' subprime mortgages as collateral. LIBOR rose steadily, reflecting the higher cost of borrowing. In October, the Fed dropped the Fed Funds rate to 1.5%, but LIBOR rose to a high of 4.8%. In response, the Dow dropped 14%. The $700 billion bailout helped reassure banks, and LIBOR returned to normal levels. For more, see Historical LIBOR Rates.

What It Means to You


If you have an adjustable-rate loan, your rate will reset based on the LIBOR rate. Even if you have a fixed-rate loan and pay off your credit cards each month, an rising LIBOR will make all types of consumer and business loans more expensive. This reduces liquidity, slowing economic growth and creating unemployment. (Updated December 17, 2009) Examples:

LIBOR, other interest rate indexes


By Bankrate.com The LIBOR is among the most common of benchmark interest rate indexes used to make adjustments to adjustable rate mortgages. This page also lists some other less-common indexes. Click on the links below to find a fuller explanation of the term. Updated 4/6/2011 LIBOR, other interest rate indexes This week Month ago Year ago Bond Buyer's 20 bond index FNMA 30 yr Mtg Com del 60 days 5.00 4.65 4.90 4.67 4.44 5.04

1 Month LIBOR Rate 3 Month LIBOR Rate 6 Month LIBOR Rate Call Money 1 Year LIBOR Rate Ratings methodology

0.24 0.29 0.46 2.00 0.79

0.26 0.31 0.46 2.00 0.79

0.25 0.30 0.45 2.00 0.92

Who are they for? These indexes are of interest to investors and borrowers alike, especially those who have mortgages or business loans tied to these indexes. What's included? The Bond Buyer 20 bond index is a barometer for yields on tax-free bonds issued by state governments and local municipalities. The Fannie Mae 30-year mortgage commitment for delivery within 60 days helps mortgage lenders determine what rates to charge on 30-year fixed rate mortgages that are to be sold to Fannie Mae within the next 60 days. The LIBOR rates, which stand for London Interbank Offered Rate, are benchmark interest rates for many adjustable rate mortgages, business loans, and financial instruments traded on global financial markets. Mortgage Overnight Averages Product 30 yr fixed 15 yr fixed 5/1 ARM 30 yr fixed refi View rates in your area: advertisement advertisement

Rate 4.90% 4.10% 3.50% 4.91%

+/-

Last week 4.84% 4.05% 3.47% 4.86%

Explainer What is Libor? Libor stands for the London interbank offered rate and is the main setter of interest in the London wholesale money market. Unlike bank rate, which is set directly by the Bank of England, Libor rates are set by the demand and supply of money as banks lend to each other to balance their books on a daily basis.

Libor covers lending from overnight up to one year and is used to price all kinds of financial instruments such as loans and floating-rate mortgages. Instruments in several other currencies are also priced relative to Libor, such is the size of the London market. The focus now is on the three-month Libor rate. This normally trades at a small premium of around 0.15% over where the market thinks the bank rate will be in three months' time. So recently it had been hovering at just over 6%, since bank rate was widely expected to be raised from 5.75% to 6%. But two weeks ago the rate shot up to 6.6% and has stayed around that level, hitting an eight-and-a-half year high of 6.7% yesterday. This reflected a reluctance by banks to lend to each other for fear that the counterparty may have problems related to the US subprime mortgage crisis and not be able to pay the money back. The same thing happened in the eurozone money market yesterday, with the euro Libor three-month rate widening to its highest since May 2001 at 4.74%, compared with the European Central Bank's base rate of 4%. "The size of the potential problems for the banking sector both in Europe and in the US is still very uncertain and might be very large and this is what is keeping interbank markets and money markets dislocated," said Marco Annunziata, chief economist at UniCredit Matthew Cairns, at Moody's research arm Economy.com, agreed: "Banks are holding back purely because there is a serious unknown here which has never existed before. I don't think money markets are convinced we've hit the worst of what is to come." Ashley Seager

Libor Mortgage Loan Tutorial April 26, 2004, Revised January 24, 2009, August 17, 2009, August 24, 2010 This tutorial will answer the following questions: * What is Libor ? * What is a Libor ARM? * What is special about a Libor ARM? * In what ways are Libor ARMs like other ARMs? * Why should anyone select a Libor ARM? * How do you get the information needed to assess a Libor ARM?

What Is Libor?

Libor is short for the London InterBank Offered Rate, the interest rate offered for U.S. dollar deposits by a group of large London banks. There are actually several Libors corresponding to different deposit maturities. Rates are quoted for 1-month, 3-month, 6-month and 12-month deposits. What Is a Libor Mortgage? mortgage is an adjustable rate mortgage (ARM) on which the interest rate is tied to a specified Libor index. After an initial period during which the rate is fixed, it is adjusted to equal the most recent value of the Libor index, plus a margin, subject to any adjustment cap.
A Libor

For example, on April 26, 2004, one lender was offering a 6-month Libor ARM at 3%, zero points, and a margin of 1.625%. The new rate 6 months later will be 1.625% plus the 6-month Libor at that time. If that is (say) 2.625%, the new rate will be 1.625% + 2.625% = 4.25%. If the adjustment cap that limits the size of rate changes is 1%, however, the new rate will be only 3% + 1% = 4%.

Special Features of Libor Mortgages


Low Margins for A-Quality Borrowers: Libor ARMs were developed to meet the needs of foreign investors looking to minimize their interest rate risk on dollar-denominated investments. A foreign bank that buys the 6-month Libor ARM containing a 1.625% margin can borrow the funds it needs in the inter-bank market for 6 months at the 6month Libor. The bank pays the depositor Libor, and it earns Libor + 1.625% on the ARM. The margin is locked in, except to the extent that changes in Libor are not fully matched by changes in the ARM rate because of rate caps. Because of the reduced risk, investors in Libor ARMs are willing to accept a smaller margin than is common on other ARMs. On April 26, 2004, for example, the Libor margin available to A-quality borrowers was as low as 1.50%, compared to 2.25 2.75% on ARMs indexed to other series. But not everyone can benefit from the low margin. On the same day that the lender cited above was offering a 6-month Libor ARM at 3% with a 1.625% margin, a sub-prime lender was offering a 6-month Libor ARM to borrowers with D-credit at 10% with a 7% margin! August 24, 2010 Note: In the aftermath of the financial crisis, Libor margins are not the bargains they once were. The margins I see now are 2.25% rather than 1.625% Attractive Buydowns: On 30-year fixed-rate mortgages, borrowers can usually "buy down" the rate by % by paying about 1.5 points. I have seen 30-year Libor ARMs that allow the borrower to buy down the rate and margin by % for only 3/8 of a point. This

is an incredible bargain, but the Libor ARMs that offer it may have an unusually high maximum rate. No Negative Amortization: Libor ARMs dont offer the payment flexibility, nor the associated risks, of negative amortization ARMs. High Index Volatility: Libor is about as volatile as rates on short-term US Government securities, and more volatile than the COFI, CODI and MTA indexes. Index Risk: In the first version of this tutorial, this was omitted. My presumption, badly mistaken, was that Libor would track Treasury indexes very closely. In 2004 and 2005, one-month Libor, which is the most widely-used of the Libor ARM indexes, was below one-year Treasuries, which is the most common of the Treasury ARM indexes. Differences were in the range of .25% to .50%. In 2006 until the middle of 2007, this relationship was reversed, with Libor higher by about the same amounts. Starting in August 2007, coincident with the emerging financial crisis and loss of confidence in banks by other banks, the spread widened and became highly volatile. ARM borrowers indexed to Libor were severely disadvantaged. In November, 2008, at the height of the crisis, one-month Libor was more than 3% higher than one-year Treasuries! The spread later fell to about 1-1.5%, in 2009, and was close to zero in August 2010.

Common Features of Libor Mortgages


The remaining features of Libor ARMs are very similar to those of other ARMs. Initial rate period. This is the period during which the initial rate holds. Initial rate periods on Libor ARMs range from 6 months to 10 years. Subsequent adjustment period. This is period between rate adjustments after the first adjustment. For example, an ARM on which the initial rate holds for 3 years and is then adjusted every year is a "3/1". Most Libor ARMs adjust every 6 or 12 months. Rate Adjustment Caps: Rate adjustment caps that limit the size of a rate change are generally 1% on 6-month Libors, and 2% on 1-year and 3-year Libors. On 7 and 10-year Libors, the cap is usually 5% on the first adjustment and 2% on subsequent (annual) adjustments. On some 5-year Libors, however, the adjustment cap is the same as that on 1-year and 3-year Libors, while on others it is the same as on 7-year and 10-year Libors. Maximum Interest Rate: This is the highest interest rate allowed on the ARM over its life. The maximum rate on some Libor ARMs is set at 5% or 6% above the initial rate. On others it is set at an absolute level 11%, for example, regardless of the initial rate.

Why Select a Libor Mortgage?


You select a Libor loan not because it uses Libor but because it has a combination of other features that in combination add up to an attractive ARM for you. An ARM is attractive if, during the period you expect to have the mortgage, the interest savings early in that period (relative to a FRM or an ARM with a longer initial rate period) outweigh the risk of interest rate and payment increases later on.

What is Libor? Answers to interest-rate questions Posted 9/28/2008 4:45 PM | Comment | Recommend

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By Alan Zibel, AP Business Writer WASHINGTON It goes by a clumsy acronym, and its inner workings may be difficult to understand, but a key interest rate set in London every business day is having a dramatic impact on the U.S. and global economies as the credit crisis has intensified. Here are some questions and answers to help make sense how this interest rate, known as Libor, may affect your household: Q. What is Libor? A. Libor, an acronym for the London Interbank Offered Rate, is the interest rate at which large international banks are willing to lend each other money on a short-term basis. It's calculated every business day in 10 currencies and 15 terms, ranging from overnight to one year. Q. How big is its influence? A. Rates on about $10 trillion in corporate loans, mortgages and student loans worldwide are pegged to Libor, usually with a markup of several percentage points, according to University of Edinburgh professor Donald MacKenzie. The total amount of financial contracts tied to Libor, particularly interest-rate swaps exceeds $300 trillion, or $45,000 for every person in the world. The rate ended up being calculated in London after President Lyndon Johnson tried to stop dollars from moving overseas in the 1960s. In response, a so-called "Eurodollar" market developed in dollar-denominated deposits held by foreign banks. The calculation of Libor is so important to the world's financial system that its coordinators have set up dedicated backup phone lines so the number can still be figured

out if there's a terrorist attack, MacKenzie wrote in a recent paper in the London Review of Books. Q. How does it get set? A. Every business day, more than a dozen banks report to the British Bankers Association their estimates of the rates at which they are able to borrow money from other banks. After discarding the highest and lowest rates reported, BBA staffers average the rest and report the figures daily after 11 a.m. London time. This system, in place since the mid1980s, has generally worked well, MacKenzie said in an interview. Without a globally accepted benchmark for interest rates there would be "chaos and confusion," he said. Q. OK, so what's the problem? A. In more normal times, Libor rates usually track about half a percentage point above the yields on U.S. government debt with comparable maturities. But that gap has widened considerably in recent weeks, increasing borrowing costs for millions. On Friday, the sixmonth Libor rate was 2.3 percentage points above comparable Treasury bills. A year ago, the difference was 1.2 percentage points. Q. Why is that happening? A. With major institutions such as Washington Mutual Inc. and Lehman Brothers failing, banks are extremely wary about lending money to each other because they are worried about who will be the next to fail. "The level of trust ... has just evaporated," said John Silvia, chief economist with Wachovia Corp. Q. So how does it affect my life? A. More than half of U.S. adjustable rate home loans are tied to Libor, so a recent increase in this benchmark rate mean monthly mortgage payments will rise for affected homeowners if the rise is sustained. A typical adjustable rate home loan will adjust based on the six-month Libor, plus 2 to 3 percentage points. Plus, many home equity lines of credit, small business loans and student loans also use Libor as an index. Student loans, for example, can be set based on the three-month Libor rate plus, say, 4 percentage points or the one month Libor rate, plus 9 percentage points. Q. Why are so many U.S. home loans tied to these rates? A. Adjustable-rate mortgages used to be based on the yields of short-term government debt. But as international money flowed into the U.S. mortgage market this decade, investors in mortgage debt wanted to use a rate "that was a little more indicative of their cost of doing business in global markets," said Keith Gumbinger, a senior vice president with financial publisher HSH Associates. Q. How does it impact the economy?

A. Because Libor's elevated state has pushed up rates on adjustable mortgages as well as rates on many commercial loans, that has blunted the effectiveness of the recent interestrate cuts enacted by Federal Reserve policymakers in an effort to stimulate the economy. It also means consumers, who account for more than two-thirds of total U.S. economic activity, can find their access to credit restricted. "Consumers are going to be retrenching and trying to cut down their spending," said BNP Paribas economist Anna Piretti. Q. What does it mean for borrowers in danger of losing their homes to foreclosure? A. Borrowers with high-rate adjustable mortgages are already defaulting in huge numbers. While rates for Libor are rising, they are still about 1.24 percentage points lower than a year ago. Rising interest rates are not good for borrowers facing foreclosure, said Jay Brinkmann, chief economist with the Washington-based Mortgage Bankers Association. But, he added, "it's not clear that the magnitude is going to be that great unless it goes up even more." To report corrections and clarifications, contact Reader Editor Brent Jones. For publication consideration in the newspaper, send comments to letters@usatoday.com. Include name, phone number, city and state for verification. Guidelines: You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. Read TO BE CONTINUED.