Settlement Amount – Interest Difference / [1 – Settlement Rate × (Days During Contract Period 360) The purchaser of a futures agreement enters into the contract to protect against future interest rate increases. On the other hand, the seller enters into the contract to protect himself from a future interest rate cut. For example, a German bank and a French bank could enter into a semi-annual term rate contract, under which the German bank would pay a fixed interest rate of 4.2% and receive the variable principal rate of 700 million euros. An FRA is basically a loan to leave in advance, but without the exchange of capital. The nominal amount is used simply to calculate interest payments. By allowing market participants to act today at an interest rate that will be effective at a later stage, CSA allows them to guarantee their commitment to interest in future commitments. Interest rate agreements are agreements between the bank and the borrower, in which the bank agrees to lend money to the borrower at an agreed interest rate at a nominal capital at a time in the future. Since FRAs are charged on the settlement date – the start date of the fictitious loan or deposit – liquid severance pay, the interest rate differential between the market interest rate and the FRA contract rate determines the risk for each party. It is important to note that there is no major cash flow, as the amount of capital is a fictitious amount. [3×9 dollars – 3.25/3.50%p.a ] means that interest rates on deposits from 3 months are 3.25% for 6 months and that the interest rate from 3 months is 3.50% for 6 months (see also the spread of the refund application). The entry of an “FRA payer” means paying the fixed rate (3.50% per year) and obtaining a fluctuating rate of 6 months, while the entry of an “R.C.
beneficiary” means paying the same variable rate and obtaining a fixed rate (3.25% per year). If the compensation rate is higher than the contractual rate, the seller fra must pay the amount of compensation to the buyer. If the contract rate is higher than the billing rate, the buyer must pay the amount of compensation to the seller. If the contract rate and the clearing rate are the same, no payment is made. For example, XYZ Corporation, which borrowed money on a variable interest basis, estimates that interest rates are likely to rise.