Either-Way Market

Posted in Finance, Accounting and Economics Terms, Total Reads: 239
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Definition: Either-Way Market

Either-Way Market is a pricing condition observed in the Euro Interbank deposit market when the bid and offer rates for a particular period are equal.


Bid rate is the rate at which banks are willing to borrow from other banks. LIBID is the London Interbank Bid Rate at which banks are willing to borrow Euro currency deposits from other banks.


Offer rate is the rate at which banks are willing to lend money to other banks. LIBOR is the London Interbank Offer Rate at which banks offer loans to other banks in the London market.


High levels of liquidity narrows the spread between bid and offer rates making both the rates almost equal, thereby resulting in an either-way market. The point at which both the bid and the offer rates converge is known as the indifference point. At the indifference point, banks can go either for lending or borrowing at the same rate.


For e.g. If the overnight Euro LIBOR is 0.12% and the LIBID is 0.10% and if there are only a few banks which are willing to lend, then the lending rate would be 0.12%. But if there is more liquidity in the market, then the number of banks which are willing to lend will increase thereby decreasing the LIBOR to 0.10% which is equivalent to the LIBID rate.

 

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