First Bank EXPLAINER: What is interbank rate?

The interbank rate is a term used by those who are involved in the banking sector, and those interested in currency exchange rates in particular. It is a monetary system in which banks are required to determine the amount of available dollar liquidity.

It refers to the foreign exchange rates paid by banks when they trade currencies with other banks. The interbank system is short-term, typically overnight, and rarely more than a week.

The interbank market is a global network utilized by financial institutions to trade currencies and other currency derivatives directly between themselves.

It is a system for trading dollars between local banks by which each bank is obligated to announce prices through the screens of the electronic trading network under the supervision of the monetary authorities.

No bank has the right to refrain from announcing the prices of trading foreign currencies.

Banks use the interbank market to manage their own exchange rate and interest rate risk as well as to take speculative positions based on research.