Forward Rate Agreement (FRA)

A contract determining an interest rate to be paid or received on a specific obligation beginning at a start date in the future. A notional principal contract like an FRA need not be with the party on the other side of the obligation that the FRA contract is linked to. Any gain or loss on the FRA is like a gain or loss on an option or futures contract. It is a function of the return of an underlying position. Also called Future Rate Agreement (FRA). See Degenerate Swap. See also Exchange Rate Agreement (ERA).