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A forward rate agreement's (FRA's) effective description is a cash for difference derivative contract, between two parties, benchmarked against an interest rate index. That index is commonly an interbank offered rate (-IBOR) of specific tenor in different currencies, for example LIBOR in USD, GBP, EURIBOR in EUR or STIBOR in SEK.
Compared to their futures counterparts, forwards (especially Forward Rate Agreements) need convexity adjustments, that is a drift term that accounts for future rate changes. In futures contracts, this risk remains constant whereas a forward contract's risk changes when rates change. [11]
In business and contract law, a forward-forward agreement (FFA) is a form of forward rate agreement in which party A agrees to lend party B the m 1 amount of money, at future time t 1. In return, B will pay to A a larger monetary amount m 2 at time t 2 > t 1. The name "forward-forward agreement" derives from the fact that both issuing and ...
The forward rate is the future yield on a bond. It is calculated using the yield curve . For example, the yield on a three-month Treasury bill six months from now is a forward rate .
An investor enters into a forward agreement to purchase a notional amount, N, of the base currency at the contracted forward rate, F, and would pay NF units of the quoted currency. On the fixing date, that investor would theoretically be able to sell the notional amount, N , of the base currency at the prevailing spot rate, S , earning NS units ...
The forward exchange rate depends on three known variables: the spot exchange rate, the domestic interest rate, and the foreign interest rate. This effectively means that the forward rate is the price of a forward contract, which derives its value from the pricing of spot contracts and the addition of information on available interest rates.