Forward Rate Lock Agreement

September 20, 2021

Future Interest Rate Agreements (FRA) are over-the-counter contracts between parties that set the interest rate to be paid on an agreed date in the future. A FRA is an agreement to exchange an interest rate bond on a nominal amount. The buyer of an interest rate agreement in advance concludes the contract in order to guard against any future increase in interest rates. The seller, on the other hand, concludes the contract to protect himself against a future fall in interest rates. For example, a German bank and a French bank could enter into a semi-annual forward rate contract, under which the German bank will pay a fixed rate of 4.2% and receive the variable interest rate on the capital of 700 million euros. In the financial field, an interest rate agreement in advance (FRA) is an interest rate derivative (IRD). These include a linear IRD with strong associations with interest rate swaps (IRSs).

Previous post:

Next post: