Fra Forward Rate Agreement Calculation

The buyer of the contract is paid if the published reference rate is higher than the contractually agreed fixed rate and the buyer pays to the seller if the published reference rate is lower than the contractually agreed fixed rate. A company that wants to hedge against a possible rise in interest rates would buy FRAs, while a company that seeks to hedge interest rates against a possible drop in interest rates would sell FRAs. FRA are indicated with the FRA course. Therefore, if a 2×8 FRA is quoted at 1.50% in US dollars and a future borrower expects the 6-month Libor rate to be above 1.50% in two months, they should buy a FRA. As a hedge vehicle, FRA short-term futures (STIRs) are similar. But there are a few differences that set them apart. .

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