Floor Rate And Ceiling Rate Meaning

An interest rate floor is an agreed upon rate in the lower range of rates associated with a floating rate loan product.

Floor rate and ceiling rate meaning.

It is the opposite of an interest rate floor. Ceiling refers to the highest price the maximum interest rate or the largest of some other factor involved in a transaction. Interest rate floors are utilized in derivative. One such feature is called a warrant.

Parliament s standing committee on finance has suggested a floor rate and ceiling in the proposed goods and services tax gst and making it optional for states to introduce indirect tax reforms. The price ceiling definition is the maximum price allowed for a particular good or service. An interest rate ceiling reduces the risk of the party paying the interest. The coupon rate has a floor and a ceiling meaning that the coupon is subject to a minimum and a maximum.

In this case the coupon rate is said to be capped and the upper and lower rates are sometimes called the. In general price ceilings contradict the free enterprise capitalist economic culture of the united states. The maximum level permissible in a financial transaction. For example an adjustable rate mortgage may have an interest rate ceiling stating that the rate will not go over 9 even if the formula used to calculate the interest rate would have it do so.

The price floor definition in economics is the minimum price allowed for a particular good or service. This will lead to multiple tax rates in gst while the government s original intent was to have a uniform rate across the country. This is in contrast to an interest rate ceiling. An interest rate ceiling is the maximum interest rate permitted in a particular transaction.

An interest rate floor reduces the risk to the bank or other party receiving the interest. Many bonds have unusual or exotic features. For example an adjustable rate mortgage may have an interest rate floor stating that the rate will not go below 3 5 even if the formula used to calculate the interest rate would have it do so. They are most frequently taken out for periods of between 2 and 5 years although this can vary considerably.

An interest rate cap is a derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price an example of a cap would be an agreement to receive a payment for each month the libor rate exceeds 2 5.