Common Contracts
1 similar Forward Rate Agreement contracts
Fra forward rate agreement pdfForward Rate Agreement • March 15th, 2021
A forward rate agreement (FRA) is ideal for an investor or company who would like to lock-in an interest rate. They allow participants to make a known interest payment at a later date and receive an unknown interest payment. This helps in protecting investors from volatility in future interest rate movements. By entering into an FRA, the parties agree on an interest rate for a stated period starting on a future date, based on the specified principal amount at the contract initiation. The buyer of a forward rate agreement enters into the contract to protect himself from any future increase in interest rates. The seller, on the other hand, enters into the contract to protect himself from any future decline in interest rates. For example, a German bank and a French bank might enter into a semiannual forward rate agreement contract where the German bank will pay a fixed rate of 4.2% and receive the floating rate on the principal of €700 million. Since FRAs are cash-settled on the settlemen
