Forward Rate Agreement

Product description

Forward rate agreement (FRA) enables clients to fix future interest rates. FRA is used by subjects that want to hedge the floating interest rate of their loan against an increase, or it is used to hedge a future investment bound to a floating reference rate against a decrease.

FRA is an agreement on a future time interest rate that the client concludes with the bank to hedge against the risk of a change in interest rates. Its outcome is the difference between the agreed time rate interest and the value of the set reference interest rate on a given day (at the beginning of the contracted period in the future), relative to the nominal amount and the agreed period of maturity. The receivable is met on the given day, and so the amount of the receivable is discounted by the reference rate. FRA transactions are not standardized. There are no charges or commission at the time of concluding the agreement.

The maximum FRA duration is one year. The beginning is usually postponed up to one year, in exceptional situations for two years, after the standard processing value date T + 2. FRA can be concluded in any main currency and most currencies of emerging markets. The minimum amount for a transaction is CZK 50 mil. or an equivalent in another convertible currency.

Who provides information

Treasury Department