where v {displaystyle v_ {n}} is the discount factor of the payment date on which the difference is physically settled, which in modern price theory depends on the discount curve to be applied based on the credit support hazard (CSA) of the derivative contract. FRAs are not loans and do not constitute agreements to lend any amount of money to another party, on an unsecured basis, at a known interest rate. Their nature as an IRD product only produces leverage and the ability to speculate or hedge interest rate risks. This module demonstrates the close link between the FRA and Eurodollar futures markets. These contracts allow a company to replace variable rates with fixed rates or vice versa. FRAs are tailor-made contracts that can be obtained through investment banks. The party paying the fixed interest rate is designated as the borrower, while the party receiving the variable interest rate is designated as the lender. The agreement on the rate in the future could have a maximum duration of five years. Since banks are usually the counterparty to FRAs, the customer must have a line of credit established with the bank in order to enter into a forward rate agreement.

A credit quality control usually requires 3 years of annual visits to be taken into account for a FRA. The duration of the contract is usually between 2 weeks and 60 months. However, FRAs are more readily available in multiples of 3 months. Competitive prices are available for fictitious capital of $5 million or more, although lower amounts may be offered by a bank for a good customer. Banks like FRAs because they don`t have capital requirements. [US$ 3×9 – 3.25/3.50% p.a] – means that the interest rates on deposits from 3 months are 3.25% for 6 months and the credit rate from 3 months is 3.50% for 6 months (see also the margin of the money letter). . . .

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