Okuzeka
Finance & Banking vocabulary · Interest & Exchange Rates

Forward rate agreement

Meaning in finance & banking, with examples

nounAdvanced term

In finance & banking, forward rate agreement means: A contract settling the difference between an agreed rate and a future reference rate on a notional amount.

In Turkish: vadeli faiz anlaşması

How it is used

Abbreviated FRA; the notional amount is a calculation base rather than a loan disbursement.

Example sentences

  1. The treasurer used a forward rate agreement to hedge borrowing planned for June.

    The hedge addresses an interest rate fixed in a future period.

  2. A forward rate agreement produced a cash settlement when the reference rate rose.

    Only the contractual rate difference is settled.

Common collocations

  • enter a forward rate agreement
  • FRA settlement
  • derivativeA financial contract whose value depends on the price of something else, such as a currency, interest rate, share or commodity.
  • hedgeTo reduce the risk of losing money from changes in prices, interest rates or exchange rates, usually by taking an opposite position with derivatives.

More terms: Interest & Exchange Rates

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This page explains English vocabulary for learners. It is not financial advice.