CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

In a forward rate agreement, the buyer 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.
Correct Answer: I and IV

The buyer agrees to pay a fixed interest payment at a future date and receive an interest payment at a rate to be determined at expiration.

User Contributed Comments 7

User Comment
aggabad buyer= borrower
seller= lender
mordja buyer = borrower = long position
seller = lender = short position
poomie83 buyer: pay fixed, receive floating and gains/looses on spread if interest rates increase/decrease
johntan1979 Pay fixed now, receive float later.
ankurwa10 I think Poomie83 and johntan1979 have better explanations/observations on this one. because i know that buyer = borrower; and seller = lender, but the term borrower in my mind implies borrowing now, which causes confusion i.e. why does the buyer have to pay fixed. at least for me, better to memorise what poomie83 and johntan1979 said.
adidasler you don't pay now ... you pay later ...
interest is fixed but paid at the date
you get the LIBOR rate at whatever it is in the future
Patdotcom the answer is contradictory. The buyer pays now or at a future date?
You need to log in first to add your comment.