ACCA Advanced Financial Management (AFM) Practice Exam

The correct answer is that LIBOR stands for London Interbank Offer Rate. This term refers to the average interest rate at which major global banks are willing to lend to one another on an unsecured basis in the London interbank market. It serves as a benchmark for various financial products, including loans and derivatives.

The significance of LIBOR lies in its role in determining borrowing costs for both institutions and individuals. It is calculated daily based on submissions from a panel of banks and is used internationally in various financial contracts. LIBOR acts as a standard for a range of financial products, allowing for comparability and transparency in the pricing of loans and risk management strategies.

Other options do not accurately define LIBOR. For example, while "Lowest Interbank Offer Rate" and "Liquidity Interbank Operating Rate" include elements related to interest rates, they do not capture the full and specific meaning associated with LIBOR. The term "Long-term International Borrowing Rate" suggests a focus on long-term borrowing, which is not what LIBOR represents, as it primarily reflects short-term borrowing rates. Thus, the specific interpretation of LIBOR being the London Interbank Offer Rate is the most accurate and contextually relevant.