What Is Forward Rate Agreements

An FRA leads to the settlement of the cash difference between the interest rate differentials of the two contracts. The nominal amount of $5 million will not be exchanged. Instead, the two companies involved in this transaction use this number to calculate the interest rate differential. The date of negotiation is the date of signature of the contract. The date of setting is the date on which the reference rate is examined and then compared to the term rate. For the pound sterling, it is the same day as the settlement date, but for all other currencies, it is 2 working days before. .

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