Forward Rate Agreement Term Sheet

An advance interest rate agreement (FRA) is ideal for an investor or company that wants to guarantee an interest rate. They allow participants to subsequently make a known interest payment and receive an unknown interest payment. This helps protect investors from the volatility of future interest rate movements. With the conclusion of a FRA, the parties agree on an interest rate for a given period starting at a future date, based on the nominal amount indicated at the beginning of the contract. On the fixing date (October 10, 2016), the 6-month LIBOR is set at 1.26222, which corresponds to the billing rate applicable to the company`s FRA. 2×6 – Fra with a waiting period of 2 months (forward) and a contract duration of 4 months. Dave wants to receive £100 in 3 months. How much will it cost him today? The price of this futures contract would be the current value of £100 in 3 months. FRAs are money market instruments and are traded by both banks and companies. .