Drop Lock

DEFINITION of 'Drop Lock'

An arrangement whereby the interest rate on a floating rate note or preferred stock becomes fixed if it falls to a specified level.

BREAKING DOWN 'Drop Lock'

If a country had a floating exchange rate and a currency that suddenly dropped, the drop lock would fix the exchange rate once it hit a certain level.

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RELATED FAQS
  1. Which of the following strategies is (are) appropriate? I. If a borrower has a fixed ...

    The correct answer is: a) (II) is incorrect because if an investor has floating rate assets and is expecting interest rates ... Read Answer >>
  2. How does float affect the nation's money supply?

    Learn how float affects the appearance of the nation's money supply, and receive a brief lesson on how the U.S. government ... Read Answer >>
  3. What exactly is a company's float?

    The term "float" refers to the regular shares that a company has issued to the public that are available for investors to ... Read Answer >>
  4. How do I determine a company's floating stock?

    Find out more about floating stock, outstanding shares and restricted stock, and learn how to calculate the amount of a company's ... Read Answer >>
  5. In what ways has technology helped to reduce float?

    Learn more about the impact of float on the U.S. monetary system and how technology has changed the amount of float as measured ... Read Answer >>
  6. How are international exchange rates set?

    International currency exchange rates display how much one unit of a currency can be exchanged for another currency. Currency ... Read Answer >>
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