Common Contracts
1 similar Forward Rate Agreement contracts
Forward rate agreement cfaForward Rate Agreement • November 19th, 2020
The Forward Rate Agreement (FRA) is a forward contract in which one of the parties, for a long time, agrees to pay a fixed interest payment in the future and receive an interest payment at the rate to be determined upon expiration. This is a forward contract at an interest rate (not on bonds or loans). Long pays a fixed rate and receives a floating rate. If Libor rises long will get. Short pays a floating rate and receives a fixed rate. If Libor falls short will get. The fixed rate is also called the forward contract rate. The interest rate to be determined after the expiration date is also called the base rate. The buyer actually agreed to borrow the amount of money in the future at the stated forward (contract) rate. The seller actually fixed the credit rate. The buyer of FRA makes a profit from the increase in interest rates. Seller FRA profits from rate cuts. The example of Shell and Barclays is included in the following FRA: Shell, the end user, occupies a long position in the FRA
