Forward rate agreement (FRA)

For whom it is intended:

• Particularly for legal entities
  

Definition:

This refers to a transaction wherein one or the other party pays (once or periodically) floating amounts in a specified currency calculated from a notional amount in the same currency and the difference between the floating and fixed interest rates.

If the difference between the floating and fixed interest rates is a  positive value, i.e. the floating interest rate for the given interest period is higher than the fixed interest rate, the seller of the FRA pays the floating amount. In the opposite case, when the floating interest rate for the given interest period is lower than the fixed interest rate, the buyer of the FRA pays the floating amount.

Advantages of the product:

• Guarantees the interest rate for the buyer
• No costs connected with concluding a transaction
• Flexibility of parameters – can easily be adjusted to the structure of the underlying instrument

Disadvantages of the product:

• The buyer has no possibility to profit from a drop in interest rates.

Conditions of concluding a transaction:

• Master Agreement for Financial Transactions
• Limit for treasury operations
• Minimum volume of EUR 1,000,000

For more information, please contact your bank advisor.