interest rate floor
Noun
An over-the-counter (OTC) contract in which its writer (seller) guarantees its buyer a minimum return (yield) on an investment of funds for a fixed period in exchange for a premium, with the writer paying the buyer any difference between the mutually agreed strike rate (floor rate) and the lower market reference rate on the notional principal amount on any reset date for the interest rate period.
Synonym(s):
- floor; floor option.
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