Forward Rate Agreements

A forward rate agreement (FRA) is a cash-settled obligation on interest rates for a pre-set period on a pre-set interest rate index with a forward start date. A 3×6 FRA on US dollar LIBOR (the London Interbank Offered Rate) is a contract between two parties obliging one to pay the other the difference between the FRA rate and the actual LIBOR rate observed for that period. An Interest Rate Swap is a strip of FRAs.

4 years ago