Forward Rate Agreement (FRA)


A Forward Rate Agreement (FRA) is an OTC (over the counter) interest rate future, which allows the securing of an interest rate for a given term starting in the future.

  • Interest rate hedging of an underlying loan or an investment transaction is possible
  • The interest rate fixed on the trade date is referred to as the FRA interest rate
  • A discounted payoff takes place between the counterparties after fixing the reference interest rate

Example:

Underlying transaction: Financing based on 3M-Euribor (plus credit margin)

Forward Rate Agreement

Interest Hedge transaction for an interest period

Forward Rate Agreement

   Financing costs after closing an interest hedge transaction:
           FRA Rate + Credit Margin

A buyer of a FRA thus fixes the interest rate on a borrowing. He protects himself against rising interest rates and waives the savings opportunities that falling interest rates would offer. The position of the seller is exactly reversed.

  • FRA agreements can be tailored to suit your needs and those of the underlying transaction
  • Liquidity and quotation of FRAs for terms of up to 24 months (total period from trade date)
  • Separation of liquidity and interest rate risk (i.e. more flexibility) structured (i.e. more flexibility)

In the event of early termination of the contract, the Forward Rate Agreement could assume a negative or positive market value for you.