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. What does floating stock tell traders about a particular stock?

    Learn about what floating stock tells a trader about a particular stock. One commonality of the biggest winners in stock ... Read Answer >>
  2. 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 >>
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    Find out more about float and how checking float is created in the American banking system. Learn more about why the Federal ... Read Answer >>
  4. How does float affect the nation's money supply?

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  5. What months of the year typically have the highest float?

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