Guide to Analysing Companies

Float
There are three meanings.
1 The number of securities issued by a company or its bank
that are free to be traded; that is, securities that are not held by
investors who are unlikely or unable to sell them. The fewer the
number of shares available to be traded, the lower the level of
liquidity in a particular security.
2 Money that appears in the accounts of banks from cheques
in the process of being cleared. Money being shunted from one
account to another will disappear from the account from which
it is debited sometimes days before it reappears in the account
being credited. Customers transferring money from one
account to another may understandably be annoyed if they
lose interest as a result.
3 cash held in the till by a retailer or other such business using
notes and coins.
Floating charge
security given by a borrower to a lender that floats over all
the borrower’s assets. So if the borrower fails to repay the
loan, the lender can claim any of the borrower’s assets, up to
the value of the loan.
Floating rate
A rate of interest that changes with the cost of funds.
Since banks and other financial institutions must charge their
F
FLOATING RATE
141
02 Essential Finance 10/11/06 2:22 PM Page 141

---

customers a margin over their own cost of funds, interest rates
throughout the banking chain – from central bank to retail
customer – move up and down depending on the demand for
funds. The starting point is usually the base or prime rate at
which banks lend to their best customers.
Floating-rate note
A bond with a coupon whose rate of interest varies in
line with a market rate of interest such as the london inter-
bank offered rate (or libor). A floating-rate note (frn)
often has a long or sometimes even infinite maturity. Also
called adjustable-rate notes, frns appeal to borrowers who
expect interest rates to fall. At such times borrowers do not
want to be locked into paying the fixed rates of interest that
apply to traditional bonds. frns were invented by lenders in
the euromarkets and have since become popular among
banks dealing in international markets.