Which of the following statements is true?
A)A very actively traded spot contract is the spot rate agreement (SRA).
B)A very actively traded spot contract is the futures rate agreement (FRA).
C)A very actively traded forward contract is the forward rate agreement (FRA), commonly used to lock in the interest rate on shorter term borrowings.
D)A very actively traded spot contract is the option rate agreement (ORA), commonly used to grant the right to buy or sell an asset at a specified price.

Question

Quizplus · Accepted Answer

The statement "A very actively traded forward contract is the forward rate agreement (FRA), commonly used to lock in the interest rate on shorter term borrowings." is true. FRAs are contracts where two parties agree to exchange a fixed interest rate for a floating interest rate at a predetermined date in the future. They are commonly used by banks to hedge against interest rate movements and by borrowers to lock in the cost of borrowing. They are typically traded over-the-counter (OTC) and are not standardized, but are still considered a form of forward contract. Option rate agreements (ORAs) are not a commonly used term in finance, and spot and futures rate agreements are not well-known products.

Which of the Following Statements Is True