Page 39 - FINAL CFA SLIDES DECEMBER 2018 DAY 14

LOS 51.b: Describe the use of interbank

offered rates as reference rates in floating- Session Unit 14:
rate debt,. p.20 51. Fixed income markets: issuance, trading and funding

Interbank lending rates, such as London Interbank Offered Rate (Libor), or EURIBOR are frequently used
as reference rates for floating-rate debt. An appropriate reference rate is one that matches a floating-

rate note’s currency and frequency of rate resets, such as 6-month U.S. dollar Libor for a semi-annual
floating-rate note issued in U.S. dollars.

LIBOR is an average rate calculated from a survey of 18 banks’ expected borrowing rates in the

interbank market, after excluding the highest and lowest quotes.
tanties
LOS 51.c: Describe mechanisms available for issuing bonds in primary markets. p. 21

• Underwritten offering -entire bond issue is purchased from the issuing firm by the investment
bank, termed the underwriter in this case. While smaller bond issues may be sold by a single

investment bank, for larger issues, the lead underwriter heads a syndicate of investment banks
who collectively establish the pricing of the issue and are responsible for selling the bonds to

dealers, who in turn sell them to investors.

• Best efforts offering: investment banks sell the bonds on a commission basis. Unlike an

underwritten offering, the investment banks do not commit to purchase the whole issue (i.e.,
underwrite the issue).

• Some bonds, especially government bonds, are sold through an auction.