floating-rate bond

Examples of floating-rate bond in the following topics:

• Floating-Rate Bonds

  • Floating rate bonds are bonds that have a variable coupon equal to a money market reference rate (e.g., LIBOR), plus a quoted spread.
  • Floating rate bonds (FRBs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a quoted spread (i.e., quoted margin).
  • There are many variations of floating-rate bonds.
  • FRBs can also be obtained synthetically by the combination of a fixed rate bond and an interest rate swap.
  • Thus, FRBs differ from fixed rate bonds, whose prices decline when market rates rise.

• Other Types of Bonds

  • Fixed rate bonds have a coupon that remains constant throughout the life of the bond.
  • Floating rate notes (FRNs, floaters) have a variable coupon that is linked to a reference rate of interest, such as LIBOR or Euribor.
  • It is one type of floating rate bond.
  • The interest rate is normally lower than for fixed rate bonds, with a comparable maturity.
  • Therefore, subordinated bonds usually have a lower credit rating than senior bonds.

• Advantages of Bonds

  • In finance, a bond is an instrument of indebtedness of the bond issuer to the holders.
  • Most individuals who want to own bonds do so through bond funds.
  • Bonds are often liquid.
  • There are also a variety of bonds to fit different needs of investors, including fixed rated bonds, floating rate bonds, zero coupon bonds, convertible bonds, and inflation linked bonds.
  • A bond is an instrument of indebtedness of the bond issuer to the holders.

• Types of Bonds

  • A company is likely to exercise this call right when its outstanding bonds bear interest at a much higher rate than the company would have to pay if it issued new but similar bonds.
  • These bonds have a stipulated conversion rate of some number of shares for each USD 1,000 bond.
  • These are high-interest rate, high-risk bonds.
  • Also known as FRNs or floaters, these have a variable coupon that is linked to a reference rate of interest, such as LIBOR or Euribor.
  • It is characterized as the safest bond, with the lowest interest rate.

• Coupon Interest Rate

  • Usually this rate is fixed throughout the life of the bond.
  • Based on different coupon rates, bonds are classified into many types.
  • Fixed-rate bonds have a coupon that remains constant throughout the life of the bond.
  • Floating rate notes (FRNs, floaters) have a variable coupon that is linked to a reference rate of interest, such as LIBOR or Euribor.
  • The interest rate is normally lower than for fixed rate bonds with a comparable maturity.

• Long-Term Debt

  • Most corporate bonds are fixed-rate bonds, meaning that the interest rate stays the same until maturity.
  • Some use floating rates to determine the exact interest rate paid to bond holders.
  • The interest rate paid on these varies depending on some index, such as LIBOR.
  • The interest that the firm will pay ultimately comes down to one factor: at what rate will investors believe the bonds are a good investment?
  • Indicators for riskiness can include individual credit histories (for a bank loan) or bond rating by a credit rating company (for corporate bonds).

• Government Bonds

  • A government bond is a bond issued by a national government denominated in the country's domestic currency.
  • There are two types of interest rates: fixed and floating.
  • At the secondary market, each bond will be assigned with very own bond code (ISIN code).
  • Secondly, there is inflation risk, in that the principal repaid at maturity will have less purchasing power than anticipated if the inflation rate is higher than expected.
  • Many governments issue inflation-indexed bonds, which protect investors against inflation risk by increasing the interest rate given to the investor as the inflation rate of the economy increases.

• Managed Float

  • Managed float regimes are where exchange rates fluctuate, but central banks attempt to influence the exchange rates by buying and selling currencies.
  • Some economists believe that in most circumstances floating exchange rates are preferable to fixed exchange rates.
  • However, pure floating exchange rates pose some threats.
  • A floating exchange rate is not as stable as a fixed exchange rate.
  • Describe a managed float exchange rate and explain why countries choose managed floats

• Exchange Rate Systems

  • The three major types of exchange rate systems are the float, the fixed rate, and the pegged float.
  • A floating exchange rate, or fluctuating exchange rate, is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market.
  • A currency that uses a floating exchange rate is known as a floating currency.
  • Many economists believe floating exchange rates are the best possible exchange rate regime because these regimes automatically adjust to economic circumstances.
  • The system is a method to fully utilize the peg under the fixed exchange regimes, as well as the flexibility under the floating exchange rate regime.

• Bond Valuation Method

  • Whether the amount the business will receive equals its face value depends on the difference between the bond's contract rate and the market rate of interest at the time the bond is issued .
  • The bond's contract rate is another term for the bond's coupon rate.
  • The market rate is what other bonds that have a similar risk pay in interest.
  • If the market rate is less than the coupon rate, the bonds will probably be sold for an amount greater than the bonds' value.
  • The discount rate for both the principal and interest payment components is the market rate when the bond was issued.