Anatomy of a Five Year Bear Floater
A floating rate note which resets at a multiple of the floating reference index rate minus a fixed rate. The floating rate increases or decreases by a multiple of the actual change in the floating rate index, but the multiplication of the floating rate and the subtraction of the fixed rate causes the rate on the note to multiply changes in the reference index rate. The figure illustrates a bear floater that calls for a variable rate payment of twice LIBOR minus the fixed rate. If floating rates rise, the floating rate receiver will obtain a leveraged benefit. Compare with Reverse Floating Rate Note (diagram).
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