Generally speaking, the term "interbank" refers to any dealings between two banks. In the same way that interstellar travel is a trip between two stars...interbank is activity between banks.
More specifically, there's what's called the "interbank market," a currency trading platform used by financial institutions. It allows banks to tap into the forex market ("forex" being short for "foreign exchange").
You run a big multinational banking conglomerate. One day, a client of yours, a member of the British royal family, does well in one of the casinos in Monte Carlo. His winnings are all in euros, which he deposits in your Monte Carlo branch. He flies back to London that night, and the next day wants to withdraw the cash in British pounds to fund a shopping spree.
So...you've received a bunch of euros, but after a very quick turnaround, have to deliver the funds in pounds. Time to use the interbank market to make the currency switch.
The market can also be used for more speculative trading. A bank may want to hedge against currency or interest rate risk using the interbank market.
Related or Semi-related Video
![Finance: What is a Broker-Dealer?](https://media1.shmoop.com/video/thumbnails/COURSE.FINANCE.605_770x433.jpg)
Finance: What is a Broker-Dealer?16 Views
Finance a la shmoop.. what is a broker-dealer? It's one of [Homeless guys holding help signs]
these guys who's making less than minimum wage right no that'd be a broke
dealer and you won't find too many of them in Lake Tahoe but yeah a broker is [Man talking about broker-dealers in Lake Tahoe]
just someone who takes a commission for selling stuff they live wherever there
are transactions in cars, boats, planes, homes and securities like stocks and
bonds so yeah it's a broker - dealer sort of like a writer-director
sexual deviant in Hollywood... Key takeaway here the broker dealer brokers
securities ie they take a commission and they deal in securities like they carry [People playing blackjack]
their own inventory of ten million shares of Amazon this week's selling
them for twelve hundred ninety dollars and 32 cents a share and buying them for
twelve hundred eighty eight dollars seventy nine cents a share making a
spread of...
equals a dollar fifty-three a share the dealer makes a spread of a buck fifty [Dealer and market transferring cash and stock]
three every time she trades a share of the Walmart killing behemoth yeah it's
sort of a Goliath slaying Goliath story there that Amazon Walmart thing we're
watching it so think about broker-dealer making money on both sides of the trades
that's the way to go if you're going to Wall Street make money no matter what [Man walking on Wall Street]
Up Next
What is Electronic Communication Network (ECN)? In order to facilitate the exponential increase of trading volume in the markets, any financial ins...