FRA, for short, is an over-the-counter (OTC) agreement to apply a certain interest rate to either lending or borrowing a specified principal amount during a predetermined future period. The contract is designed on an underlying assumption that the lending or borrowing would be usually effected at a floating rate (LIBOR rate). A forward rate agreement differs from a swap because in the former a payment is made only once at maturity, whilst in the latter a set of payments are made on specific reset dates.
January 21, 2025
