A floating rate note is a debt instrument with a variable interest rate that adjusts periodically based on a benchmark rate, such as LIBOR or SOFR, plus a specified spread. Unlike fixed-rate bonds, the coupon payments on floating rate notes fluctuate with market interest rates, offering investors protection against rising rates. These instruments are typically issued by corporations or governments to manage interest rate risk. They provide flexibility in changing economic conditions.
Context
While traditionally a staple of conventional finance, floating rate notes could see increased relevance in tokenized debt markets. News might discuss the potential for tokenizing these instruments to enhance liquidity and accessibility, particularly in decentralized finance applications. The integration of real-world asset tokenization with blockchain technology presents opportunities for new financial products. Understanding these traditional financial instruments helps to contextualize their potential digital counterparts.
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