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. Holding The Market

    The practice of placing active or pending orders for a security ...
  4. Bottom

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

    The maximum level permissible in a financial transaction. Ceiling ...
  6. Underwriting

    1. The process by which investment bankers raise investment capital ...
RELATED FAQS
  1. Why would a company issue a rights offering?

    Companies most commonly issue a rights offering to raise additional capital. A company may need extra capital to meet its ... Read Full Answer >>
  2. What is price variance in cost accounting?

    Price variance in cost accounting is the difference between the actual price paid by a company to purchase an item and its ... Read Full Answer >>
  3. What is the difference between share purchase rights and options?

    There is a big difference between share purchase rights and options. With share purchase rights, the holder may or may not ... Read Full Answer >>
  4. What do you need to know to create a business model?

    A business model lays out the idea for a business, along with the step-by-step plan for making the business profitable. To ... Read Full Answer >>
  5. Do any markets not exhibit asymmetric information?

    Asymmetric information, when interpreted literally, means that two parties to an economic transaction have different information ... Read Full Answer >>
  6. What is the difference between an option-adjusted spread and a Z-spread in reference ...

    Unlike the Z-spread calculation, the option-adjusted spread takes into account how the embedded option in a bond can change ... 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 Deadweight Loss?

    Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  6. Economics

    Gaining Market Influence-- The Case of US Shale

    A convergence of sustained bank financing, falling production costs and rising oil prices might position the US shale industry for a greater market role.
  7. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.
  8. Economics

    Explaining Tier 1 Capital

    Tier 1 capital refers to the core capital a bank must maintain in relation to its assets.
  9. Investing

    What More Volatility Means For Momentum Stocks

    One byproduct of the recent tick higher in bond yields: a meaningful rise in volatility for both stocks and bonds.
  10. Personal Finance

    Can Electric Cars Replace Gas Guzzlers?

    High costs and poor battery performance have deterred many from switching to electric cars, which begs the question: can electric cars replace gas guzzlers?

You May Also Like

Hot Definitions
  1. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  5. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  6. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
Trading Center