Floating Rate Bonds (FRBs)

The interest on such bonds is not fixed. It is floating and is linked to a benchmark rate such as interest on treasury bills, bank rate, maximum rate on term deposits. It is typically a certain percentage point higher than the benchmark rate. The prices of FRBs tend to be fairly stable and close to par value in comparison with fixed interest bonds. They provide a protection against inflation risk to investors, particularly banks and financial institutions.

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