Question

What is the difference between an indicative price like LIBOR and a transaction price like the S&P 500 and why is it important?

Answer 1

S&P 500 is a stock market Index that measures the stock performance of largest 500 companies listed on the stock exchanges in USA and LIBOR stands for LONDON INTERBANK OFFERED RATE. LIBOR is an Indicative average Interest rate at which a selection of Banks (the Panel Banks) are prepared to lend each other Unsecured funds.

S&P 500 is a transaction price because many futures and options are traded on this Index which decides real profits and losses for the Investors whereas the LIBOR is an Indicative rate which is calculated as an average for various maturities on which a panel of Banks agree to lend each other. The difference is important because S&P 500 decides real profits and gains wheras LIBOR is just an agreement for the sake of smooth transactions among a panel of banks.