A structured financial instrument whose coupon rate is determined by the formula 5% – (0.5 × Libor) is most likely:
- a leveraged inverse floater.
- a participation instrument.
- a deleveraged inverse floater.
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Leveraged instrument are structured financial instrument that offer higher return for small investment. The example of Leveraged instrument is an inverse floater.
Unlike a traditional floater the cashflow are inversely related to changes in the reference rate. When the reference rate increase coupon on inverse floater decreases
Deleveraged inverse floater is a floater with a coupon leverage rate is greater than 0 but lower than 1
Leveraged inverse floater is a floater with a coupon leverage greater than 1 are known as Leveraged inverse floaters
Hi Shubham
I didn’t get this concept, could you please elaborate or share audio.
Please go through the audio