An interest rate swap in which the floating-rate coupon increases in value as the underlying floating rate falls. In essence, when the market floating rate decreases, the floating rate of the swap increases and vice versa. For example, a reverse floater swap based on LIBOR would pay a higher coupon as LIBOR falls and a lower coupon payment when LIBOR rises. A typical example of a reverse (or inverse) floater coupon would be one structured as follows:

10% – 3-month EURIBOR × 2, min coupon = 0.

Therefore, if the 3-month LIBOR is 4%, then the coupon payment for a given fixing date is:

10% – (4% × 2) = 10% – 8% = 2%

If the 3-moth LIBOR is 5.5%, then the coupon payment would be:

10% – (5.5% × 2) = 10% – 11% = 0%

This is so because the coupon payment cannot be lower than zero.

The reverse floater swap is also called an inverse floater swap.