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Financial futures and forward rate agreements (FRAs)
Forward rate agreements (FRAs)
INTRODUCTION
Futures and FRAs are derivative instruments based on a short-term forward interest rate. They enable investors and borrowers to fix the interest rate today for a period that starts in the future. There is no exchange of principal amount, only the difference between the futures/FRA rate and the underlying cash (spot) market rate is settled. Futures are exchange-traded securities and implicitly offer liquidity, credit default protection and price transparency. The contract range and specification is fixed, hence the clients who need more flexibility would trade FRAs in the OTC market. The main purpose of both ...
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