Floating Interest Rates

Floating Interest Rates At a time when interest rates are falling in the country companies are reluctant to borrow large sums of money from the banks at fixed interest rates. If bankers are flush with funds and find it difficult to find large borrowers, they may offer floating rates of interest to corporate borrowers to protect them form possible loss. The rate is pegged at a few percentage points above an anchor or a reference rate, such as for 364-day treasury bills or the MINIMUM LENDING RATE. There may also be a cap, i.e., upper limit, and a floor, i.e., lower limit. Investment bankers and mutual funds now think that if they are to persuade customers to borrow long term, a floating interest rate is essential.

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