A floating rate contact is an investment/loan instrument whose interest payment is tied to some variable (floating) interest rate benchmark.
The coupon/interest amount fluctuates according to the rise or fall in the market interest rates. NIBOR was established as a standardised benchmark for the
pricing of such floating rate contracts in Nigeria.
The parties to the contract agree on a specific benchmark tenor (e.g. 3-month NIBOR) and the specific day to make reference to the benchmark.
On the agreed date, the applicable benchmark rate is used to derive the coupon/interest payment on the contract.