Interest rate volatility affects the price of a fixed-rate bonds. A floating-rate note (a floater, or an FRN) maintains a more stable price than a fixed-rate note because interest payments adjust for changes in market interest rates. With a floater, interest rate volatility affects future interest payments.

The quoted margin is typically the specified yield spread over or under the reference rate, which is often LIBOR. It is used for compensating the investor for the difference in the credit risk of the issuer and that implied by the reference rate.

The discount margin, also known as the required margin, is the spread required by investors. It reflects "bottom-up" or issuer- and security-specific risks and is analogous to a yield spread for a fixed-rate bond. The quoted margin must be set in order for the FRN to trade at par value on a rate reset date. That is, if a floater trades at par, the quoted and required margins are equal.

Changes in the required margin usually come from changes in the issuer's credit risk.