floater and inverse floater

AMITAG1990
Finance Junkie
Posts: 89
Joined: Sat Sep 22, 2012 12:35 pm

floater and inverse floater

Postby AMITAG1990 » Mon Oct 29, 2012 7:22 pm

please explain me in brief, what is floater and inverse floater option..??

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content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: floater and inverse floater

Postby content.pristine » Wed Oct 31, 2012 2:56 pm

Basically, these are bonds where the coupon is not fixed, but it varies from time to time. The coupon value depends on something called a "reference rate". The most common is the LIBOR.
For a floater, the coupon increases when reference rate increases. For example: Coupon=LIBOR+5%.
For an Inverse floater, coupon decreases when reference rate increases. For example:
Coupon=12%-LIBOR

8-)

AMITAG1990
Finance Junkie
Posts: 89
Joined: Sat Sep 22, 2012 12:35 pm

Re: floater and inverse floater

Postby AMITAG1990 » Thu Nov 01, 2012 7:14 pm

thanx a lot.


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