FRA can help you fix interest rates for the future. It also offers additional benefits.
A Forward Rate Agreement (FRA) enables interest rate hedging for a specified period in the future. This transaction is neutral for the balance sheet. No principal is exchanged at the end of the interest period. Only the difference between the agreed FRA price and the reference moment at maturity is settled. The FRA price is tied to one interest period.
- Trades can be made on business days from 8:30 a.m. to 5 p.m.
- Standard periods are in 1, 3, 6 or 9 months for 3 months (i.e. 1x4, 3x6, 6x9, 9x12), and in 3 or 6 months for 6 months (i.e. 3x9, 6x12); maximum FRA maturity is 2 years
What do you need to arrange a FRA?
- You need to sign a Treasury Master Agreement with Raiffeisenbank
- You need to notify Raiffeisenbank of your Legal Entity Identifier
- The client buys a FRA of CZK 100 million for the interest period from 3 June 2014 to 3 September 2014 (92 days), with the client agreeing to pay an interest rate of 4% and Raiffeisenbank agreeing to pay the 3-month PRIBOR rate.
- If the 3-month PRIBOR rate is 4.2% on 30 May 2014 (2 business days before 3 June), Raiffeisenbank will pay the client (4.2% – 4%) x 92/360 x CZK 100 million = CZK 51,111.
- If the 3-month PRIBOR rate is lower than 4% on 30 May 2014, the client will pay Raiffeisenbank (4% – 3-month PRIBOR) x 92/360 x CZK 100 million