Forward Rate Agreement - FRA

Forward Rate Agreement - FRA
An over-the-counter contract between parties that determines the rate of interest, or the currency exchange rate, to be paid or received on an obligation beginning at a future start date. The contract will determine the rates to be used along with the termination date and notional value. On this type of agreement, it is only the differential that is paid on the notional amount of the contract.

Also known as a "future rate agreement".

Typically, for agreements dealing with interest rates, the parties to the contract will exchange a fixed rate for a variable one. The party paying the fixed rate is usually referred to as the borrower, while the party receiving the fixed rate is referred to as the lender.

For a basic example, assume Company A enters into an FRA with Company B in which Company A will receive a fixed rate of 5% for one year on a principal of $1 million in three years. In return, Company B will receive the one-year LIBOR rate, determined in three years' time, on the principal amount. The agreement will be settled in cash in three years.

If, after three years' time, the LIBOR is at 5.5%, the settlement to the agreement will require that Company A pay Company B. This is because the LIBOR is higher than the fixed rate. Mathematically, $1 million at 5% generates $50,000 of interest for Company A while $1 million at 5.5% generates $55,000 in interest for Company B. Ignoring present values, the net difference between the two amounts is $5,000, which is paid to Company B.


Investment dictionary. . 2012.

Игры ⚽ Нужен реферат?

Look at other dictionaries:

  • Forward Rate Agreement (FRA) — Zinsausgleichsvereinbarung, bei der für eine künftige Mittelaufnahme oder anlage ein bestimmter Zins, die Forward Rate, vereinbart wird. Ist zum Zeitpunkt der Mittelaufnahme oder anlage der aktuelle Geldmarktzinssatz über die Forward Rate… …   Lexikon der Economics

  • Forward rate agreement (FRA) — Agreement to borrow or lend at a specified future date at an interest rate that is fixed today. The New York Times Financial Glossary …   Financial and business terms

  • forward rate agreement — ( FRA) A customized agreement between two parties specifying the rate to be paid at some future date. Usually tied to LIBOR. American Banker Glossary ( FRA) Agreement to borrow or lend at a specified future date at an interest rate that is fixed… …   Financial and business terms

  • forward rate agreement — (FRA) An agreement under which one party undertakes to make to the other party payments calculated by reference to a specified fixed interest rate on a notional principal sum in respect of a period in the future. Similarly, the other party agrees …   Law dictionary

  • Forward rate agreement — In finance, a forward rate agreement (FRA) is a forward contract in which one party pays a fixed interest rate, and receives a floating interest rate equal to a reference rate (the underlying rate). The payments are calculated over a notional… …   Wikipedia

  • Forward Rate Agreement — Ein Forward Rate Agreement (FRA) ist ein außerbörsliches Zinstermingeschäft (Derivat), das es ermöglicht, einen Zinssatz für einen in der Zukunft liegenden Anlagezeitraum zu sichern. Die Vereinbarung erfasst dabei nicht die eigentliche Geldanlage …   Deutsch Wikipedia

  • Forward rate agreement — контракт между банком и клиентом, гарантирующий процентную ставку по отношению к определенной сумме в течение обусловленного периода. Синонимы английские: FRA См. также: Банковские процентные ставки Финансовый словарь Финам …   Финансовый словарь

  • Forward Rate Agreement — Un Forward Rate Agreement, ou FRA, est un produit dérivé utilisé sur le marché monétaire. Il s agit d un contrat forward, négocié de gré à gré entre deux contreparties et dont l objectif est la fixation dès aujourd hui d un taux in fine de… …   Wikipédia en Français

  • forward-rate agreement — FRA 1) A contract between two parties that determines the rate of interest that will apply to a future loan or a deposit, which may or may not materialize. 2) A specified amount of a specified currency to be exchanged on an agreed future date at… …   Accounting dictionary

  • forward-rate agreement — FRA 1) A contract between two parties that determines the rate of interest that will apply to a future loan or a deposit, which may or may not materialize. 2) A specified amount of a specified currency to be exchanged on an agreed future date at… …   Big dictionary of business and management

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”