Forward Rate Agreement (FRA)

What is Forward Rate Agreement (FRA)?

Forward Rate Agreement (FRA) meaning An OTC forward contract on a short-term interest rate. The buyer of a FRA is a notional borrower, i.e., the buyer commits to pay a fixed rate of interest on some notional amount that is never actually exchanged. The seller of a FRA agrees notionally to lend a sum of money to a borrower. FRAs can be used either to hedge interest rate risk or to speculate on future changes in interest rates.

 

reference: U.S. COMMODITY FUTURES TRADING COMMISSION – CFTC Glossary