what is a forward rate agreement fra 
a forward rate agreement fra is an over the counter otc contract between parties in which the underlying is an interest rate in an fra one side of the contract called the long side is obligated to pay a fixed rate interest on a given amount in the future the other party called the short side must pay according to a floating interest rate index on the same future date for the same amount 1 the duration of an fra is typically one interest rate period e g 90 days but it can be whatever length of time the parties agree on fras provide a glimpse into the market s expectations for future interest rates unlike implied forward rates which are derived from rates trading right now fras are traded directly in the market offering a more direct view of where market participants believe interest rates are headed at their core fras are derivative contracts with a value that is based on an underlying interest rate index when an fra is initiated its value is zero and neither party pays a premium the fixed rate in an fra contract is the market s consensus view of where the underlying interest rate will be at the contract s maturity date this makes fras valuable for gauging market sentiment and managing interest rate risk by locking in a future interest rate businesses and investors can protect themselves from potential rate changes investopedia theresa chiechi