A forward rate agreement (FRA)is a contract between two banks:
A) that allows the Eurobank to hedge the interest rate risk in mismatched deposits and credits
B) in which the buyer agrees to pay the seller the increased interest cost on a notional amount if interest rates fall below an agreed rate, and the seller agrees to pay the buyer the increased interest cost if interest rates increase above the agreed rate
C) that is structured to capture the maturity mismatch in standard-length Eurodeposits and credits
D) All of these

Question

Quizplus · Accepted Answer

A forward rate agreement (FRA) is a financial contract between two parties that can hedge interest rate risk, manage the impact of interest rate fluctuations on cash flows, and address maturity mismatches in financial operations. Therefore, all the options provided (A, B, C) correctly describe aspects and functions of an FRA, making D the correct choice.

A Forward Rate Agreement (FRA)is a Contract Between Two Banks