- CFA Exams
- CFA Level I Exam
- Study Session 16. Derivatives
- Reading 49. Basics of Derivative Pricing and Valuation
- Subject 4. Forward Rate Agreements
CFA Practice Question
In a forward rate agreement, the seller agrees to ______.
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
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. |