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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.