what is forward rate agreement
A Forward Rate Agreement, or FRA, is an agreement between two parties who want to protect themselves against future movements in interest rates.By entering into an FRA, the parties lock in an interest rate for a stated period of time starting on a future settlement date, based on a specified notional principal amount.RAs are settled using cash on the settlement date. This is the start date of the notional loan or deposit. The exposure to each counterparty is determined by the interest rate differential between the market rate on settlement date and the rate specified in the FRA contract. There are no principal flows.