Query in sfm

Dear Neeti,

This is the Forward Rate Contract ( Agreement made for future requirement) loan period. Usually the period is quoted in the format of A x B. A represents the number of months until the loan is set to begin. And B representing tthe number of months until the loan ends. To find the length of loan period substract A from B.

In the finst case loan period is 3 months. (6-3). In the second case loan period is 6 months ( 9-3).

Originally posted by : Neeti
	Plz tell me the meaning of following: 3×6FRA. Or 3×9 FRA

FRA refers to Forward Rate Agreement in short. It is an over the counter (OTC) agreement between two parties.

Meaning of 3X6 FRA:

This refers to interest rate starting 3 months from now and ending at 6 months from now. Total underlying tenure is for (6-3) 3 months.

For example : On 1st JAN 3X6 FRA would refer to interest rate for period starting on 1st April and ending on 30th June.

FRA is a OTC derivative product and is used to hedge interest rate exposure (converting variable interest rate to fixed). It is a kind of Interest Rate Swap.

Bharat Aggarwal