Floor

AAA

DEFINITION of 'Floor'

The lowest acceptable limit as restricted by controlling parties. Floors can be established for a number of factors, including prices, wages, interest rates, underwriting standards and bonds. Some types of floors, such as underwriting floors, act as mere guidelines while others,such as price and wage floors, are regulatory constraints that restrict the natural behavior of free markets.

INVESTOPEDIA EXPLAINS 'Floor'

Lenders use an underwriting floor to establish minimum guidelines for borrower creditworthiness and to determine the size of loan the borrower is qualified for.


A price floor is the lowest price that a government allows a good to be sold for. For example, the government might decide to establish a price floor for alcoholic beverages with the goal of lowering alcohol consumption for health reasons. In the absence of a price floor, the free market equilibrium price might be lower.


Minimum wage is an example of a wage floor. This floor is a minimum price per hour that a worker must be paid, as determined by federal and state governments. An unintended consequence may be to increase unemployment, as low-skilled workers are priced out of the labor market and companies cannot afford to hire as many employees.

RELATED TERMS
  1. Investment Bank - IB

    A financial intermediary that performs a variety of services. ...
  2. Underwriting

    1. The process by which investment bankers raise investment capital ...
  3. Bottom

    The lowest point or price reached by a financial security, commodity, ...
  4. Holding The Market

    The practice of placing active or pending orders for a security ...
  5. Living Wage

    A theoretical wage level that allows the earner to afford adequate ...
  6. Minimum Wage

    The minimum amount of compensation an employee must receive for ...
Related Articles
  1. Brokerage Functions: Underwriting And ...
    Brokers

    Brokerage Functions: Underwriting And ...

  2. 5 Tips For Investing In IPOs
    Investing

    5 Tips For Investing In IPOs

  3. Uncovering The Securities Firm
    Brokers

    Uncovering The Securities Firm

  4. IPO Basics Tutorial
    Retirement

    IPO Basics Tutorial

comments powered by Disqus
Hot Definitions
  1. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  2. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  3. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center