Interest rate agreement

(redirected from Interest Rate Agreements)

Interest rate agreement

An over the counter agreement whereby one party, for an up-front premium, agrees to compensate the other at specific time periods if a designated interest rate (the reference rate) is different from a predetermined level (the strike rate.) Also called a FRA (pronounced like ‘draw’) or forward rate agreement.

Interest Rate Agreement

A transaction between two investors in which one (Investor A) agrees to compensate another (Investor B) if a certain variable interest rate, known as the reference rate, rises above some agreed-upon strike rate. Investor A makes this compensation at certain periods of time over the life of the agreement each time the reference rate exceeds the strike. In exchange, Investor B gives Investor A a premium or purchase price for the agreement. See also: Interest rate swap.
References in periodicals archive ?
Called swaptions for short, these interest rate agreements are usually designed to cushion debt payments in case interest rates rise.
Specific items included in the forward-type category of derivative financial instruments include forward interest rate agreements, futures contracts interest rate swaps, interest rate collars, and commitments to purchase stock or bonds.
Unlike forward interest rate agreements, futures contracts are traded on established exchanges, such as the Chicago Mercantile Exchange.
Forward Interest Rate Agreement. A forward interest rate agreement is derivative financial instrument designed to serve as a hedge against interest rate fluctuations.