The purpose of LIBOR (London Interbank Offered Rate) in financial markets is to serve as a widely accepted benchmark interest rate that reflects the average borrowing costs among major banks in London. It plays a crucial role in pricing various financial instruments and serves as a reference rate for loans, bonds, derivatives, and other financial contracts.

LIBOR provides a standardized interest rate that allows market participants to compare borrowing costs across different banks, currencies, and borrowing periods. It enables lenders and borrowers to establish a consistent basis for determining interest rates on loans and setting pricing for financial products.

Financial institutions utilize LIBOR as a reference point when pricing floating-rate loans, adjustable-rate mortgages, and interest rate derivatives such as swaps. It also helps investors assess the risk and return of various financial instruments. Furthermore, LIBOR serves as a key component in the valuation and risk management of interest rate-sensitive portfolios.

Overall, the purpose of LIBOR is to provide a transparent, widely recognized, and efficient benchmark rate that facilitates the functioning and pricing of financial markets on a global scale.