Example Of Rate Agreement

The party in a long position agrees to borrow $15 million in 90 days (transaction date). An interest rate of 2.5% will then be applied for the remaining 180 days of the contract. Set an appointment and describe their use FRA contracts are over-the-counter (OTC), which means that the contract can be structured in such a way as to meet the specific needs of the user. FRA are often based on the LIBOR rate and represent forward interest, not spot prices. Remember that spot prices are necessary to determine the futures price, but the spot price is not equal to the futures price. For example, if the Federal Reserve Bank is raising U.S. interest rates, the so-called monetary tightening cycle, companies would likely want to raise their borrowing costs before interest rates rise too dramatically. In addition, FRA are very flexible and settlement dates can be tailored to the needs of the participants in the transaction. .

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