Coupon leverage, or leverage factor, is the amount by which a reference rate

Reference rate

A reference rate is a rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR rate, but it can take many forms, such as a consumer price index, a house price index or an unemployment rate...

 is multiplied to determine the floating interest rate

Floating interest rate

A floating interest rate, also known as a variable rate or adjustable rate, refers to any type of debt instrument, such as a loan, bond, mortgage, or credit, that does not have a fixed rate of interest over the life of the instrument....

 payable by an inverse floater

Inverse floating rate note

An inverse floating rate note, or simply an inverse floater, is a type of bond or other type of debt instrument used in finance whose coupon rate has an inverse relationship to short-term interest rates . With an inverse floater, as interest rates rise the coupon rate falls...

. Some debt instruments leverage

Leverage (finance)

In finance, leverage is a general term for any technique to multiply gains and losses. Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives. Important examples are:* A public corporation may leverage its equity by borrowing money...

 the particular effects of interest rate changes, most commonly in inverse floaters.

As an example, an inverse floater with a multiple may pay interest

Interest

Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

 at the rate, or coupon

Coupon (bond)

A coupon payment on a bond is a periodic interest payment that the bondholder receives during the time between when the bond is issued and when it matures. Coupons are normally described in terms of the coupon rate, which is calculated by adding the total amount of coupons paid per year and...

, of 22 percent minus the product

Product (mathematics)

In mathematics, a product is the result of multiplying, or an expression that identifies factors to be multiplied. The order in which real or complex numbers are multiplied has no bearing on the product; this is known as the commutative law of multiplication...

 of 2 times the 1-month London Interbank Offered Rate

London Interbank Offered Rate

The LIBOR rate is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate Banks borrow money for one day, one month, two months, six months, one year etc. and they pay interest to their lenders based on...

(LIBOR). The coupon leverage is 2, in this example, and the reference rate is the 1-month LIBOR.