An advance interest rate agreement (FRA) is an over-the-counter contract with cash settlement between two counterparties, under which the buyer lends (and lends) a notional amount at a fixed rate (fra rate) and for a specified period from an agreed date in the future. Rate difference = | (Billing rate – contract rate) | × (days in contract duration/360) × nominal amount of Company A enters into a FRA with Company B in which Company A receives a fixed rate of 5% out of a nominal amount of $1 million in one year. In return, Company B receives the one-year LIBOR rate set in three years on the nominal amount. The contract is settled in cash in a payment method at the beginning of the term period, with interest in an amount calculated with the rate of the contract and the duration of the contract. The buyer of an interest rate agreement in advance enters into the contract in order to guard against any future increase in interest rates. . . .


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