LIBOR - does it fluctuates widely ?

Question

Hi , new to LIBOR.

My co. has purchased a Fixed callable range accrual, ...underlying is LIBOR USD 3 months ...and range is 0-7.00%

This week LIBOR 3 months is 2.80. want to know that , are their any chances that LIBOR can move above 7%

What i understand is that my co. will earn the interst at some rate in all those days on which LIBOR is within the range of 0-7.00% ....Is that true?

Answer 1

Your company will earn a positive interest as long as LIBOR 3 is below 7.00% - unless your counterparty chooses to call the range accrual note (RAN): The range accrual note was issued with a call provision, giving the issuer (but not your company) the right to call the note, before the scheduled maturity date, typically at par. This call feature creates uncertainty for your company (the investor) as to whether the range accrual note will remain outstanding until its maturity date.

Since February of 1991 LIBOR 3 has not been above 7% (historical data are available here: http://www.forecasts.org/data/data/LIBOR... and the current forecast suggests that it might decrease to about 1% by the end of this year (see http://www.forecasts.org/3mlibor.htm). While it is possible to imagine LIBOR 3 to exceed 7%, it is quite unlikely that this will happen in the foreseeable future.