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  • The Financial Encyclopedia
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Derivatives

  Derivatives   |   Terms
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  • February 1, 2023
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Average Rate Floor

An interest rate floor (i.e., a contract on a minimum interest rate) whereby the seller pays the buyer, at periodic payment dates, the positive difference between the pre-determined strike price (the floor) and the average market interest rate. On each settlement date, the strike rate on the floor is compared to the average index rate over a specific period. For example, a 6% floor on prime interest rate is set against the daily average of prime rates over the last quarter.

An average rate floor is also known as an average floor or an Asian floor.


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