CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

In a forward rate agreement, the seller agrees to ______.

I. pay a fixed interest rate determined now
II. pay an interest rate to be determined at a future date
III. receive a fixed interest rate determined now
IV. receive an interest rate to be determined at a future date
A. II and III
B. I and III
C. II and IV
Explanation: The seller agrees to receive a fixed interest payment at a future date and pay an interest payment at a rate to be determined at expiration.

User Contributed Comments 3

User Comment
iceluke with FRAs the payment is later, so you have to discount; page 299
yekky I thought in Forward Rate Agreements, the buyer/seller receives or pays MONEY not interest rates?

How can one be both PAYING an interest rate determined in the future and RECEIVE a fixed rate now?

If I am the seller, I have a short position in this agreement.
sori typically in real life,
short = will be receiving a fixed rate of interest from long
long = will be receiving a variable rate of interest from short

The amounts are netted and one party will pay the other party the difference of the rates.
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