+ long (leverage factor) x floor Risks Credit risk Floating-rate notes issued by corporations, such as banks and financial firms, are subject to credit risk, depending on the credit-worthiness of the issuer. Those issued by the U.S. Treasury, which entered the market in 2014, are traditionally regarded as having minimal credit risk. Interest rate risk Opinion is divided as to the efficacy of floating-rate notes in protecting the investor from interest rate risk. Some believe that these securities carry little interest rate risk because 1) a floating rate note's Macaulay Duration is approximately equal to the time remaining until the next interest rate adjustment; therefore its price shows very low sensitivity to changes in market rates; and 2) when market rates rise, the expected coupons of the FRN increase in line with the increase in forward rates, which means its price remains constant, as compared to fixed rate bonds, whose prices decline when market rates rise. This point of view holds that floating rate notes are conservative investments for investors who believe market rates will increase. A somewhat different view is held by author Dr. Annette Thau: "The rationale for floaters is that as interest rates change, resetting the coupon rate... will tend to maintain the price of the bond at or close to par. In practice this has tended not to work out quite as well as had been hoped, for a number of reasons. First, during times of extreme interest rate volatility, rates are not reset quickly enough to prevent price fluctuations. Secondly, the coupon rates of floaters are usually well below those of long-term bonds and often not very attractive when compared to shorter maturity bonds." Complexity Commenting on the complexity of these securities, Richard S. Wilson of the credit rating firm Fitch Investors Services noted: "Financial engineers worked overtime on floating-rate securities and have created debt instruments with a variety of terms and features different from those of conventional fixed-coupon bonds....The major investment firms with their worldwide trading capabilities participate in these markets 24 hours a day. But floaters are complex instruments, and investors who don't understand them should stay away. This applies to individuals as well as institutional portfolio managers." Trading Securities dealers make markets in FRNs. They are traded over-the-counter, instead of on a stock exchange. In Europe, most FRNs are liquid, as the biggest investors are banks. In the U.S., FRNs are mostly