FRA has two parties: the buyer and the seller. When the market interest rate is greater than the agreed interest rate, the seller of FRA is not cost-effective, because FRA is a buyer's loan and then repays it at a fixed interest rate. And the seller is the receiver of the money. When the market price is higher than the agreed price, the seller gets less money than it puts into the market, so it is not cost-effective.
In FRA, there are the following elements: important time nodes, such as the start date and end date of nominal loans; The agreed execution interest rate; The market interest rate used as a reference is usually the nominal principal of the LIBOR contract.
FRA is a financial tool to prevent the risk of future interest rate changes, which is characterized by locking the future interest rate in advance. In the FRA market, the buyers of FRA hope to lock in the future financing costs now to prevent the risk of rising financing costs caused by rising interest rates. Using FRA to prevent the risk of future interest rate changes is essentially to offset the risk of spot capital market with the profit and loss of FRA market, so FRA has the function of determining financing cost or investment return in advance.
FRA is an OTC or interbank market tool. Over-the-counter market doesn't charge commission, but makes profit through the quotation spread. 2 FRA is usually used as a hedging tool and added to existing interest rate exposure positions to hedge risks. FRA is rarely used to speculate on the trend of interest rates (IRS is more common). If it is a "naked" FRA, it can be hedged with interest rate futures or IRS.
How to understand buying and selling creditors and debtors?
Creditor mainly refers to the person who advances money and has the right to ask the other party to be the subject of rights for a specific act. They refer to those institutions and individuals that provide repayable financing for enterprises, including those who provide loans to enterprises (loan creditors) and those who provide short-term financing in the form of selling goods or services (trade creditors).
(II) The contractual rights of the creditor and the debtor in the sales contract. Based on the principle of fairness, the Civil Code gives the liquidator many rights: