In a forward rate agreement (FRA), two parties agree today to a future exchange of cash flows based on two different interest rates.

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In a forward rate agreement (FRA), two parties agree today to a future exchange of cash flows based on two different interest rates. One party agrees to pay a fixed rate while the other agrees to pay a floating rate calculated based on a reference rate such as LIBOR. The FRA allows parties to manage interest rate risk by locking in a future fixed or floating rate, depending on their needs.

In a Forward Rate Agreement (FRA), Two Parties Agree Today