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. Living Wage

    A theoretical wage level that allows the earner to afford adequate ...
  3. Bottom

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

    The maximum level permissible in a financial transaction. Ceiling ...
  5. Holding The Market

    The practice of placing active or pending orders for a security ...
  6. Underwriting

    1. The process by which investment bankers raise investment capital ...
RELATED FAQS
  1. What is the difference between consumer surplus and economic surplus?

    The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price ... Read Full Answer >>
  2. What does it signify about a given product if the consumer surplus figure for that ...

    High consumer surplus for a particular product signifies a high level of utility for consumers and may carry some implications ... Read Full Answer >>
  3. What options strategies are best suited for investing in the aerospace sector?

    The best options strategies for investing in the aerospace sector exploit the sector's volatility and propensity for big ... Read Full Answer >>
  4. How do "factor endowments" impact a country's comparative advantage?

    Factor endowments impact a country's comparative advantage by affecting the opportunity cost of specializing in producing ... Read Full Answer >>
  5. What options strategies are best suited for investing in the Internet sector?

    The long straddle and long strangle options strategies enable investors to capitalize on the Internet sector's volatility. ... Read Full Answer >>
  6. How do fixed and variable costs each affect the marginal cost of production?

    The total cost of a business is comprised of fixed costs and variable costs. Fixed costs and variable costs affect the marginal ... Read Full Answer >>
Related Articles
  1. Brokers

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  2. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  3. Brokers

    Uncovering The Securities Firm

    Learn about the various departments of a securities firm and the professionals who make it work.
  4. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  5. Economics

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  6. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
  7. Economics

    Understanding Subordinated Debt

    A loan or security that ranks below other loans or securities with regard to claims on assets or earnings.
  8. Economics

    How to Calculate Trailing 12 Months Income

    Trailing 12 months refers to the most recently completed one-year period of a company’s financial performance.
  9. Economics

    What is Unearned Revenue?

    Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser.
  10. Economics

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center