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Coupon Leverage
Coupon leverage, or leverage factor, is the amount by which a reference rate is multiplied to determine the floating interest rate payable by an inverse floater. Some debt instruments leverage the particular effects of interest rate changes, most commonly in inverse floaters. As an example, an inverse floater with a multiple may pay interest at the rate, or coupon, of 22 percent minus the product of 2 times the 1-month London Interbank Offered Rate The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. The resulting average rate is u ... (LIBOR). The coupon leverage is 2, in this example, and the reference rate is the 1-month LIBOR. References Interest rates {{finance stub ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Reference Rate
A reference rate is a rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR rate, but it can take many forms, such as a consumer price index, a house price index or an unemployment rate. Parties to the contract choose a reference rate that neither party has power to manipulate. Examples of use The most common use of reference rates is that of short-term interest rates such as LIBOR in floating rate notes, loans, swaps, short-term interest rate futures contracts, etc. The rates are calculated by an independent organisation, such as the British Bankers Association (BBA) as the average of the rates quoted by a large panel of banks, to ensure independence. Another example is that of swap reference rates for constant maturity swaps. The ISDAfix rates used are calculated daily for an independent organisation, the International Swaps and Derivatives Association, from quotes from a large pane ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Floating Interest Rate
A floating interest rate, also known as a variable or adjustable rate, refers to any type of debt instrument, such as a loan, bond, mortgage, or credit, that does not have a fixed rate of interest over the life of the instrument. Floating interest rates typically change based on a reference rate (a benchmark of any financial factor, such as the Consumer Price Index). One of the most common reference rates to use as the basis for applying floating interest rates is the London Inter-bank Offered Rate, or LIBOR (the rates at which large banks lend to each other). The rate for such debt will usually be referred to as a spread or margin over the base rate: for example, a five-year loan may be priced at the six-month LIBOR + 2.50%. At the end of each six-month period, the rate for the following period will be based on the LIBOR at that point (the reset date), plus the spread. The basis will be agreed between the borrower and lender, but 1, 3, 6 or 12 month money market rates are common ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Inverse Floating Rate Note
An inverse floating rate note, or simply an inverse floater, is a type of Bond (finance), bond or other type of debt instrument used in finance whose Coupon (bond), coupon rate has an inverse relationship to short-term interest rates (or its reference rate). With an inverse floater, as interest rates rise the coupon rate falls. The basic structure is the same as an ordinary floating rate note except for the direction in which the coupon rate is adjusted. These two structures are often used in concert. As short-term interest rates fall, both the market price and the Yield (finance), yield of the inverse floater increase. This link often magnifies the fluctuation in the bond's price. However, in the opposite situation, when short-term interest rates rise, the value of the bond can drop significantly, and holders of this type of instrument may end up with a security that pays little interest and for which the market will pay very little. Thus, interest rate risk is magnified and contai ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Leverage (finance)
In finance, leverage (or gearing in the United Kingdom and Australia) is any technique involving borrowing funds to buy things, hoping that future profits will be many times more than the cost of borrowing. This technique is named after a lever in physics, which amplifies a small input force into a greater output force, because successful leverage amplifies the comparatively small amount of money needed for borrowing into large amounts of profit. However, the technique also involves the high risk of not being able to pay back a large loan. Normally, a lender will set a limit on how much risk it is prepared to take and will set a limit on how much leverage it will permit, and would require the acquired asset to be provided as collateral security for the loan. Leveraging enables gains to be multiplied.Brigham, Eugene F., ''Fundamentals of Financial Management'' (1995). On the other hand, losses are also multiplied, and there is a risk that leveraging will result in a loss if financi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
John Wiley & Sons
John Wiley & Sons, Inc., commonly known as Wiley (), is an American multinational publishing company founded in 1807 that focuses on academic publishing and instructional materials. The company produces books, journals, and encyclopedias, in print and electronically, as well as online products and services, training materials, and educational materials for undergraduate, graduate, and continuing education students. History The company was established in 1807 when Charles Wiley opened a print shop in Manhattan. The company was the publisher of 19th century American literary figures like James Fenimore Cooper, Washington Irving, Herman Melville, and Edgar Allan Poe, as well as of legal, religious, and other non-fiction titles. The firm took its current name in 1865. Wiley later shifted its focus to scientific, technical, and engineering subject areas, abandoning its literary interests. Wiley's son John (born in Flatbush, New York, October 4, 1808; died in East Orange, New Je ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Interest
In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct from a fee which the borrower may pay the lender or some third party. It is also distinct from dividend which is paid by a company to its shareholders (owners) from its profit or reserve, but not at a particular rate decided beforehand, rather on a pro rata basis as a share in the reward gained by risk taking entrepreneurs when the revenue earned exceeds the total costs. For example, a customer would usually pay interest to borrow from a bank, so they pay the bank an amount which is more than the amount they borrowed; or a customer may earn interest on their savings, and so they may withdraw more than they originally deposited. In the case of savings, the customer is the lender, and the bank plays the role of the borrower. Interest diff ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Coupon (bond)
In finance, a coupon is the interest payment received by a bondholder from the date of issuance until the date of maturity of a bond. Coupons are normally described in terms of the "coupon rate", which is calculated by adding the sum of coupons paid per year and dividing it by the bond's face value. For example, if a bond has a face value of $1,000 and a coupon rate of 5%, then it pays total coupons of $50 per year. Typically, this will consist of two semi-annual payments of $25 each. History The origin of the term "coupon" is that bonds were historically issued in the form of bearer certificates. Physical possession of the certificate was (deemed) proof of ownership. Several coupons, one for each scheduled interest payment, were printed on the certificate. At the date the coupon was due, the owner would detach the coupon and present it for payment (an act called "clipping the coupon"). The certificate often also contained a document called a ''talon'', which (when the origin ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Product (mathematics)
In mathematics, a product is the result of multiplication, or an expression that identifies objects (numbers or variables) to be multiplied, called ''factors''. For example, 30 is the product of 6 and 5 (the result of multiplication), and x\cdot (2+x) is the product of x and (2+x) (indicating that the two factors should be multiplied together). The order in which real or complex numbers are multiplied has no bearing on the product; this is known as the ''commutative law'' of multiplication. When matrices or members of various other associative algebras are multiplied, the product usually depends on the order of the factors. Matrix multiplication, for example, is non-commutative, and so is multiplication in other algebras in general as well. There are many different kinds of products in mathematics: besides being able to multiply just numbers, polynomials or matrices, one can also define products on many different algebraic structures. Product of two numbers Product of a seque ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
London Interbank Offered Rate
The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. The resulting average rate is usually abbreviated to Libor () or LIBOR, or more officially to ICE LIBOR (for Intercontinental Exchange LIBOR). It was formerly known as BBA Libor (for British Bankers' Association Libor or the trademark bba libor) before the responsibility for the administration was transferred to Intercontinental Exchange. It is the primary benchmark, along with the Euribor, for short-term interest rates around the world. Libor was phased out at the end of 2021, and market participants are being encouraged to transition to risk-free interest rates. As of late 2022, parts of it have been discontinued, and the rest is scheduled to end within 2023; the Secured Overnight Financing Rate (SOFR) is its replacement. Libor rates are calculated for five currenci ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
