Enter Into Forward Rate Agreement

However, the netting of the futures contract has the effect of settling the net difference between the two exchange rates of the contracts. The effect of a FRA is to settle the cash difference between the interest rate differentials between the two contracts. Interest rate swaps (IRSS) are often considered a set of FRAs, but this view is technically wrong due to differences in calculation methods for cash payments, resulting in very small price differentials. Future Interest Rate Agreements (FRA) are over-the-counter contracts between parties that set the interest rate to be paid on an agreed date in the future. A FRA is an agreement to exchange an interest rate bond on a nominal amount.

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