How To Read Forward Rate Agreements

Define an interest rate agreement in advance and describe its use A term rate agreement (FRA) is an over-the-counter contract with cash settlement between two counterparties, under which the buyer borrows (and lends) a fictitious amount at a fixed rate (fra rate) and for a specified period starting on an agreed date in the future. Also, there are two legs/parts of a swap, unlike a loan that has a coupon rate. Rate difference = | (Billing rate – contract rate) | × (Days in contract period/360) × Notional amount Forward Rate Agreement, commonly known as FRA, refers to specific financial contracts traded over-the-counter (OTC) that allow counterparties that are primarily large banks to set in advance the interest rates of contracts that start at a future date. The parties are classified as buyers and sellers.