The Libor effect on derivatives

The UK Court of Appeal is this week hearing two cases in an attempt to determine whether the Libor rate rigging scandal can be considered to be sufficient grounds for invalidating derivatives contracts.  In the first of the cases Barclays attempts to overturn a previous judgement which would see it having to defend in court an allegation that the manipulation of interest rates was sufficient grounds to cancel interest rate swaps sold to Guardian Care Homes.

In the second case, Indian property firm Unitech is seeking to overturn a ruling in Deutsche Bank’s favour in respect of a loan and interest rate swap.  In the original ruling, the judge, Jeremy Cooke, said that the linking of a loan and interest rate swap to Libor did not imply that the rate was honest adding that it was unrealistic to require banks to make implicit promises about the Libor-setting process.

The Appeal Court is being asked to rule between these divergent opinions in a decision which could potentially open up the way to many further cases being brought as part of the fall out to the Libor rigging scandal.

If you want to learn more about derivatives the next Eureka Financial course on “Understanding derivatives conducted by a former City trader and derivatives specialist which focuses on explaining different types of derivatives, their characteristics, pricing strategies and use by various market players.


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