A forward rate agreement (FRA) is an agreement between two parties that determines an interest rate that applies to a notional loan or deposit at a future date.
When you make the agreement, you set the notional amount, term, and rate with the other party. You can enter one agreement at a time or enter several deals to cover your interest rate exposure for a longer deal, such as a loan.
When the agreement expires, you can settle the difference between the current interest rate and the agreed upon notional interest rate.
Use the Forward Rate Agreements window to enter the details of one or more FRAs.
Navigate to the Forward Rate Agreements window.
In the Company and Counterparty fields, select a company and counterparty for the agreement.
If you are acting on behalf of a client, in the Client field choose a client for the agreement.
In the Portfolio field, choose a portfolio for the agreement.
In the Deal Subtype and Product Type fields, choose a deal subtype and product type for the agreement.
In the Currency field, choose a currency and in the Face Value field, enter the face value of the agreement.
In the Start Date and Maturity Date fields, enter a start date and maturity date for the agreement. The number of days covered by the agreement is automatically calculated using these dates and is entered in the Calculated Days field.
In the Day Count Basis field, choose a day count basis for the agreement. The day count basis determines the number of days per year used to calculate interest on the deal. The possible day count bases are: actual/actual, actual/360, actual/365, 30/360, 30E/360, 30E+/360. For more information on how each day count basis is calculated, see: Treasury Terms.
Choose the Interest Details tab region.
In the Interest Rate field, enter an interest rate for the agreement.
In the Reset Date field, enter the date on which both parties agree to reset the rate. As a default, the reset date is the deal start date.
Choose the rounding rule that you want to use for calculating interest on the deal in the Interest Rounding field. The possible choices are: Nearest, Round Up, or Round Down.
Choose the days that you want to include when interest is calculated on the deal in the Interest Includes field. The possible choices are: First Day, Last Day, or Both Days.
Note: If you select Both Days for Interest Includes, you cannot use the 30/360, 30E/360, or 30+/360 day count basis.
Complete the fields in the Additional Details tab region as needed.
Save your work.
If you want to enter multiple FRAs that share the same company, counterparty, deal subtype, product type, currency, and face value, use the Multiple FRA Deals window. Typically, you enter multiple FRAs to hedge the interest rate for the entire length of another, longer term deal.
In the Forward Rate Agreements window, enter the details for the first FRA in the series. Follow steps 1 to 8 in Entering FRAs. See: Entering FRAs.
Choose the Multiple FRAs button. The Multiple FRA Deals window appears.
In a blank row, begin entering the details for the second FRA in the series by entering a start date and a maturity date for the agreement.
In the Interest Rate field, enter an interest rate for the agreement.
In the Reset Date field, enter the date on which both parties have agreed to reset the rate. As a default, the reset date is the deal start date.
Repeat steps 2 to 5 for each FRA you want to add to the series.
Save your work.
Use the Settlement Details region of the Forward Rate Agreements window to enter the settlement details for your FRAs. You cannot settle an FRA before the reset date or after the maturity date.
In the Forward Rate Agreements window, query the FRA that you want to settle.
Choose Yes to confirm that you want to settle the details for this FRA.
Enter the date on which you want to settle the deal.
In the Settlement Rate field, enter the rate that both parties agree to use to settle the FRA. The amount of the settlement is calculated using the deal currency and the settlement rate.
Choose the rounding rule that you want to use to calculate interest in the Interest Rounding field. The possible choices are: Nearest, Round Up, or Round Down.
Choose the days that you want to include when you calculate interest on the deal in the Interest Includes field. The possible choices are: First Day, Last Day, or Both Days.
In the Settlement Amount field, the total amount of the settlement appears. You can override the settlement amount by entering a new amount. The System Settlement Amount field shows the original settlement amount calculated by the system.
Note: You can only override interest amounts if you have the appropriate user access levels. See: User Access Levels.
Select the company account to which you want to apply the settlement.
Select the counterparty who you want to receive the settlement.
Save your work. The FRA deal status changes to Settled.
If you want to view the settlement details for the FRA, in the Forward Rate Agreements window, query the record and select the Settlement Details region.
If you receive a verification of the settlement from the counterparty, check the Settlement Validated check box in the Settlement Details region. Save your work.
Use the FRA Transaction Summary window to view a summary of all of your current and settled FRAs.
In the Forward Rate Agreements window, choose the Summary button. The FRA Transaction Summary window appears.
Use the View Forward Rate Agreements window to view the details for a FRA.
In the View Forward Rate Agreements window, query the agreement that you want to view.
If you want to view a summary of all your FRAs, choose the Summary button. The View FRA Transaction Summary window appears.