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FORWARD RATE AGREEMENT

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › FORWARD RATE AGREEMENT

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
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  • February 7, 2022 at 10:04 am #648229
    shaunak22
    Participant
    • Topics: 220
    • Replies: 41
    • ☆☆☆

    there was a point given in the BPP text which i could’t understand could you please explain the follwing point-

    note – FRA is not identical to currecny forwards but it is not an agreement directly linked to a transaction instead it is a deravative agreement that fixes the interest rate on the notional amount of money?

    DOUBT – what does the above point means when it says FRA is not directly linked to a transaction ? does it means whether to FRA agreement is executed or not does it depend on us?

    February 7, 2022 at 3:30 pm #648238
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54702
    • ☆☆☆☆☆

    As I explain in my free lectures, an FRA is an agreement to fix the interest rate on a fixed amount of borrowing or depositing. It is true that there does not have to be a separate transaction that requires there to be borrowing or depositing, but the note you quote is not really relevant for the exam because the financial manager will use FRA’s when there is a transaction involving borrowing or depositing.

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