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Derivatives

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  • February 24, 2023
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Near Perfect FRN

An FRN that is embedded with caps or collars (caps and floors) so that the floating rate movement (adjustment) is better reigned in. The adjustment limit places a cap or floor on the floating rate for next resets of the rate, and hence later resets are a function of previous rates. For example, an investor may use this note to confine the rate ajustment from one reset to the next to a limit of 20 basis points.

It is also known as a path-dependent FRN.


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