forward rate agreement

Long-term Interest Rate Agreement

Party A and Party B hereby agree to enter into a long-term interest rate agreement, pursuant to which Party A shall make a payment to Party B, based on an agreed rate of interest for a predefined period of time.

This agreement shall commence on the _____ (date) and end on the _____ (date).

Details of the Payment

At the commencement of the agreement, Party A shall make a payment to Party B in the amount of _____ (amount).

The payment shall be made in________ (currency) currency and will be payable in ______ (number) installments, beginning on ________ (date) and ending on the _____ (date).

Interest Rates

The payments specified in this agreement are to be made with a predetermined interest rate of _____ percent per annum.

The interest rate shall be compounded ____ (period), beginning on _____ (date).

Failure to Pay/Default

If Party A fails to make any of the payments specified in this agreement within _____ (time period) of the dates specified, then it shall be deemed in default and may be subject to legal action taken by Party B.

Governing Law

This agreement and the relationship between the parties hereto shall be governed and interpreted in accordance with the laws of _____ (state), without giving effect to any conflicts of law principles.

Non-Waiver

Any waiver of any breach of this agreement shall not be construed as a waiver of any subsequent breach or a continuing waiver.

Miscellaneous

This agreement is between Party A and Party B, who are the only parties to this agreement and all of its provisions, and no third party may bring any action to enforce any provision of this agreement.

This agreement supersedes all prior written or oral agreements between the parties and constitutes the entire agreement between the parties.

The parties agree that this agreement may only be modified by their written consent.

The parties agree that if any provision of this agreement is held to be unenforceable, the remaining provisions shall remain in full force and effect.

IN WITNESS WHEREOF, the parties herein have signed this Long-Term Interest Rate Agreement on _____ (date).

Party A

Party B

What is a forward rate agreement?

A forward rate agreement (FRA) is a contract that sets a specific rate of interest for borrowing or lending money at some point in the future. It is a type of derivative transaction and a form of hedging against the risk of changes in interest rates.

FRAs are a type of forward contract between two parties who agree to lend or borrow a certain amount of money at an agreed-upon rate of interest on a specified date in the future. The terms of an FRA are negotiated between the parties and agreed upon at the time of the contract. The amount of the loan and the period of time are also determined at the time of the contract. Payments on the loan are made at the contracts maturity date.

FRAs are written on a variety of maturities, ranging from three months to several years. Since FRAs have no up-front cost, they are considered to be a low-cost way to hedge against the risk of changing interest rates. FRAs are traded between parties over-the-counter, as well as on exchanges.

In an FRA, one party (the “buyer”) pays the other party (the “seller”) a fixed rate of interest. For example, if the buyer enters into an FRA with a two-year maturity and agrees to a 4.25% interest rate, then he will pay the seller 4.25% annually on their loan. On the other side, the seller agrees to receive the payment from the buyer no matter what actually happens to the financial markets in the intervening two-year period.

FRAs are used by both financial institutions and corporations to hedge against changes in interest rates. For example, a financial institution may agree to enter into a forward rate agreement with a customer, in order to protect itself from losses that may be caused by rising interest rates. The customer, in turn, can use the FRA to protect itself against losses caused by falling interest rates.