Forward Interest Rate Agreement (FRA) is a forward contract, in which the buyer and the seller agree on the agreed interest rate for a certain period in the future and specify a reference interest rate. On the future settlement date, one party shall pay the other party the discount interest on the difference between the agreed interest rate and the reference interest rate at that time according to the specified period and principal amount.

Forward interest rate agreements are traded in the OTC market, and the transaction amount and delivery date are not limited, which is flexible and simple. Intra-exchange trading of interest rate futures, standardized contract trading. Forward contracts are similar to interest rate futures, except that FRA is not traded on a standardized exchange, but both parties sign an agreement over the counter. Therefore, the forward interest rate agreement can be regarded as a form of over-the-counter trading of interest rate futures.

Transaction form

Forward interest rate agreements are traded in the OTC market, and the transaction amount and delivery date are not limited, which is flexible and simple. Interest rate futures exchanges trade on the floor and standardize contract transactions.

credit risk

Both parties to the forward interest rate agreement have credit risk, and the interest rate futures risk is minimal.

Cash flow before delivery

There is no cash flow in the forward interest rate agreement, and there is net cash flow in the daily margin account of interest rate futures.

Applicable currency

Forward interest rate agreement all convertible currencies, which are stipulated by the interest rate futures exchange.