An FRA is a simple interest rate futures contract in which performance is limited to the difference in interest rates of a certain fictitious capital. It is therefore easy to understand its mechanism, the calculations of involvement and billing. As noted above, the amount of compensation is paid in advance (at the beginning of the term of the contract), while interbank rates, such as LIBOR or EURIBOR, apply to late interest transactions (at the end of the repayment period). To account for this, it is necessary to discount the difference in interest rates using the offset rate as a discount rate. The settlement amount is therefore calculated as the present value of the interest rate differential: the actual description of an interest rate tranches agreement (FRA) is a cash for contracts derived from the difference between two parties, which is assessed using an interest rate index. This index is usually an interbank interest rate (IBOR) with a specific tone in different currencies, such as libor. B in USD, GBP, EURIBOR in EUR or STIBOR in SEK. An FRA between two counterparties requires a complete fixing of a fixed interest rate, a nominal amount, a selected interest rate indexation and a date. [1] The amount borrowed can be invested for 3 million to 7%, and this investment can be invested at maturity at an unknown rate of 9 million « r ». The composite value of these two cash flows (1 – 0.07 x 91/365) – (1 r X 271/365) These two rates of 8.84% and 9.27% serve as the base rate for us for FRA prices. An FRA is a legally binding agreement between two parties.

Normally, one of the parties is a bank that specializes in FRA. As an over-the-counter contract, FRAs are best placed to adapt to the parties involved. However, unlike exchange-traded contracts, such as futures contracts. B, where the clearing house used by the exchange serves as a buyer to the seller and the seller to the buyer, there is a significant counterparty risk in which a party may not be able to pay the liability when it is due. The difference in interest rates is the result of the comparison between the high rate and the settlement rate. It is calculated as follows: 2) Short-term interest rate contracts are through derivatives used to hedge short-term interest rate risk. The lifespan of an FRA consists of two periods – the waiting time or the waiting time and the duration of the contract. The waiting period is the start time of the fictitious loan and can last up to 12 months, although the durations of up to 6 months are the most frequent.