Prior to the credit crisis that started in 2007 which of the following was the proxy used by derivatives traders for the risk-free rate
A) The Treasury rate
B) The LIBOR rate
C) The repo rate
D) The overnight indexed swap rate

Question

Quizplus · Accepted Answer

Prior to the credit crisis, the proxy used by derivatives traders for the risk-free rate was the LIBOR rate, as it was widely assumed to reflect the borrowing cost of banks with good credit. However, the credit crisis exposed inherent weaknesses in the LIBOR rate, leading to a shift towards other proxies such as the overnight indexed swap rate.

Prior to the Credit Crisis That Started in 2007 Which