A forward rate agreement is an agreement, typically between a company and a bank, about the interest rate on future borrowing or bank deposits.
1) An FRA would protect the borrower from adverse interest rate movements above the rate negotiated.
2) FRAs are flexible; they can in theory be arranged for amounts and any duration, although they are normally for amounts of over $1 million. 3)FRAs may well be free and will in case cost little.
1) The rate the bank will set for the forward rate agreement will reflect expectations of future interest rate movements. If interest rates are expected to rise, the bank may set a higher rate than the rate currently available.
2) The borrower will not be able to take advantage if interest rates fall unexpectedly.
3) The FRA will terminate on a fixed date.
4)FRAs are binding agreements so are less easy to sell to another parties