Definition for : Forward rate agreement, FRA

Forward Rate Agreements are used to lock in an Interest rate for a Future transaction. They represent the agreement concluded today between two parties to pay the pro rata difference between the agreed Interest rate and the actual Market Interest rate at the beginning of the forward rate agreement. This difference is paid on Notional amount for the length of the forward rate agreement.

(See Chapter 49 Managing working capital of the Vernimmen)

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