20 Sep 2021by tobiasschaller

Forward Rate Agreement Eur


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LIBOR in USD, GBP, EURIBOR in EUR or STIBOR in SEK. A FRA between two counterparties requires a fixed interest rate, a nominal amount, a chosen interest rate index maturity and a date that must be fully specified. [1] In other words, a term rate agreement (FRA) is a tailor-made financial futures contract on short-term deposits. An FRA transaction is a contract between two parties for the exchange of payments on a deposit, the so-called nominal amount, which must be determined on the basis of a short-term interest rate called the reference rate, over a period predetermined at a future date. There is a risk for the borrower if he had to liquidate the FRA and the interest rate on the market was unfavourable, which would result in a loss of the borrower on the cash compensation. FRA are very liquid and can be traded in the market, but there will be a cash difference between the FRA rate and the prevailing price in the market. But markets will certainly rise over time and borrowers need to prepare for that time. Good interest rate management can help increase the joy of favorable low interest rates for your business. Hedging your short-term interest rate risk with fra`s might be a good idea. Good timing is essential. A company learns that it must borrow $1,000,000 in six months for a period of 6 months. The rate at which it can borrow today is 6 months LIBOR plus 50 basis points. Suppose the 6-month LIBOR is currently 0.89465%, but the company treasurer thinks it could rise by 1.30% in the coming months.

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Categories: Allgemein