Investors who plan to gain more will always have something to look forward to with Gulf Bank. Like our Forward Rate Agreement, which is used to manage short-term interest rate exposure. It is a contract between the bank and the client to set an interest rate at some point in the future to continue for an additional period.

Description

• FRA is an interest management tool used by corporations with short term debts to lock-in borrowing cost for short periods of time, mainly below 2 years.
• A company can sell an FRA contract to hedge investments, so the "bid" is used to hedge investments, and the "offer" to hedge borrowings.
• In a FRA, principal is not exchanged, but only the amount above or below the contracted rate is actually exchanged between the parties.
• The buyer or taker of the FRA is the party seeking protection against a rise in interest rates. The buyer will make a payment only if the actual rate is below the contract rate.
• The seller or placer of the FRA is the party taking the risk of an upward movement in interest rates. The seller will make a payment only if the actual rate is above the contract rate.
• Over 90 percent of the FRA’s volumes are dealt in US Dollar, only major currencies could be traded.

The Contract

• An FRA is quoted based on the number of months from the contract date to the settlement date and the number of months between the contract date and the maturity date. For example, an FRA with a settlement in 6 months from the contract date and maturity in 9 months from the contract date is quoted as a 6 x 9 FRA (six by nine).
• The contract date is the dealing date. 
• The settlement date is the date in the future where the rate differential (between FRA and LIBOR fixing) is calculated and the payment is exchanged between the two parties. No further obligations exist beyond this date.
• The term of the FRA is the contracting period.
• The maturity date is the end of the term of the FRA contract.