abhishreshthaa
Abhijeet S
Forward rate Agreements:
A FRA is an Agreement between two parties in which one of them (The seller of FRA), contracts to lend to other (Buyer), a specified amount of funds, in a specific currency, for a specific period starting at a specified future date, at an interest rate fixed at the time of agreement. A typical FRA quote from a bank might look like this:
USD 6/9 months: 7.20 – 7.30% P.a.
This is to be interpreted as follows.
The bank is willing to accept a three month USD deposit starting six months from now, maturing nine months from now, at an interest rate of 7.20% P.a. (Bid Rate).
The bank is willing to lend dollars for three months, starting six months from now at a interest rate of 7.30% P.a. (Ask Rate).
The important thing to note is that there is no exchange of principal amount.
A FRA is an Agreement between two parties in which one of them (The seller of FRA), contracts to lend to other (Buyer), a specified amount of funds, in a specific currency, for a specific period starting at a specified future date, at an interest rate fixed at the time of agreement. A typical FRA quote from a bank might look like this:
USD 6/9 months: 7.20 – 7.30% P.a.
This is to be interpreted as follows.
The bank is willing to accept a three month USD deposit starting six months from now, maturing nine months from now, at an interest rate of 7.20% P.a. (Bid Rate).
The bank is willing to lend dollars for three months, starting six months from now at a interest rate of 7.30% P.a. (Ask Rate).
The important thing to note is that there is no exchange of principal amount.