LIBOR (London Interbank Offered Rate) is a benchmark interest rate that is used as a reference for a wide range of financial transactions, including loans, derivatives, and mortgages. It is calculated based on the average interest rate at which banks in London lend money to each other on an unsecured basis. LIBOR has been widely used globally as a benchmark interest rate for over three decades, but it has faced significant challenges in recent years due to concerns about its reliability and accuracy.
As a result, various alternative reference rates (ARRs) have been developed to replace LIBOR. One such alternative reference rate is the Secured Overnight Financing Rate (SOFR), which is based on transactions in the U.S. Treasury repurchase market. Other ARRs include the Sterling Overnight Index Average (SONIA) for the UK market and the Tokyo Overnight Average Rate (TONAR) for the Japanese market.
The Foreign Exchange Dealers Association of India (FEDAI) is a self-regulatory organization of banks and financial institutions in India that facilitates the growth and development of the foreign exchange market in India. FEDAI was established in 1958 and is recognized by the Reserve Bank of India (RBI) as the representative body of authorized foreign exchange dealers in India.
FEDAI has played an important role in developing and promoting best practices in the Indian foreign exchange market, including the adoption of electronic trading platforms, the development of standardized documentation, and the implementation of risk management guidelines. FEDAI also provides training and education to its members and conducts research on foreign exchange market trends and developments.
In addition, FEDAI has been actively involved in the transition from LIBOR to alternative reference rates in India. In August 2020, FEDAI issued guidelines for the use of ARRs in foreign exchange contracts, including the use of SOFR as an alternative to LIBOR in cross-currency swaps. These guidelines are intended to promote the use of ARRs and ensure a smooth transition away from LIBOR in the Indian foreign exchange market.