Forward rate agreement

An FRA normally does not provide the underlying loan or deposit. Instead, the parties settle the difference between the agreed rate and a reference rate on a notional amount for the covered period. A borrower typically receives compensation if rates rise above the agreed rate and pays if they fall. Actual loan margins and benchmark mismatches may remain. Settlement is commonly at the start of the covered period and therefore discounted according to the contract's convention. Identify start date, end date, rate basis and settlement assumptions before calculating.