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    Question

    Which of the following is an Alternate reference interest rate for dollar denominated derivatives and loans that replaced LIBOR?

    A Modified SOFR Correct Answer Incorrect Answer
    B Term SOFR Correct Answer Incorrect Answer
    C Adjusted SOFR Correct Answer Incorrect Answer
    D Compounded SOFR Correct Answer Incorrect Answer
    E Alternate SOFR Correct Answer Incorrect Answer

    Solution

    The secured overnight financing rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that replaced the LIBOR. SOFR is a benchmark rate administered by the Federal Reserve Bank of New York (New York Fed) which replaced the USD LIBOR in June 2023. SOFR itself is a backward-looking overnight rate because it is based on overnight transactions in the U.S. Treasury repo market. and is preferable to LIBOR since it is based on data from observable transactions rather than estimated future borrowing rates.  While SOFR became the benchmark rate for dollar-denominated derivatives and loans, other countries have sought their own alternative rates, such as SONIA and EONIA.

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