Floor Rate And Ceiling Rate Meaning

An interest rate floor reduces the risk to the bank or other party receiving the interest.

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. An interest rate ceiling reduces the risk of the party paying the interest. 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.

It is also called an interest rate cap. The maximum level permissible in a financial transaction. An interest rate ceiling is the maximum interest rate permitted in a particular transaction. The coupon rate has a floor and a ceiling meaning that the coupon is subject to a minimum and a maximum.

A floor can mean multiple things in finance including the lowest acceptable limit the lowest guaranteed limit or a physical space where. The maximum interest rate that may be charged on a contract or agreement. In this case the coupon rate is said to be capped and the upper and lower rates are sometimes called the. One such feature is called a warrant.

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. 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 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. Interest rate floors are utilized in derivative. 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 ceiling definition is the maximum price allowed for a particular good or service.

This is in contrast to an interest rate ceiling.