Forward Rate Agreement Spiegazione

FRAs are not loans and do not constitute agreements to lend any amount of money to another party, on an unsecured basis, at a known interest rate. Their nature as an IRD product only produces leverage and the ability to speculate or hedge interest rate risks. The present value for the differentiated value of a FRA, which is exchanged between the two parties and calculated from the point of view of the sale of a FRA (imitating the receipt of the fixed rate) is as follows:[1] Contractual rate: il tasso di interesse fissato dall`accordo FRA. Reference rate: il tasso base di mercato utilizzato alla fixing date per determinare la settlement sum. Amount of invoicing: l`ammontare pagato da una parte all`altra alla settlement date, calcolata sulla differenza tra il Contract e il reference rate. Many banks and large corporations will use FRAs to hedge future interest rate or foreign exchange risks. The buyer insures against the risk of rising interest rates, while the seller hedges against the risk of falling interest rates. Other parties who use interest rate agreements in the future are speculators who only want to make bets on future changes in the direction of interest rates. [2] Development exchange operations in the 1980s offered organizations an alternative to FRA for hedging and speculation. In other words, a term interest rate agreement (FRA) is a tailor-made, non-payment financial futures contract on short-term deposits. An FRA transaction is a contract between two parties for the exchange of payments on a deposit, the so-called nominal amount, which must be determined on the basis of a short-term interest rate called the reference rate, over a period predetermined at a future date. Fra transactions are recorded as hedges against changes in interest rates.

The buyer of the contract blocks the interest rate to guard against a rise in interest rates, while the seller protects against a possible fall in interest rates. At maturity, no money exchanges hands; on the contrary, the difference between the contractual interest rate and the market price is exchanged. The buyer of the contract is paid if the published reference rate is higher than the contractually agreed fixed rate and the buyer pays to the seller if the published reference rate is lower than the contractually agreed fixed rate. A company that wants to hedge against a possible rise in interest rates would buy FRAs, while a company looking for hedging against a possible drop in interest rates would sell FRAs…