Many banks and large companies will use GPs to cover future interest rate or exchange rate commitments. The buyer opposes the risk of rising interest rates, while the seller protects himself against the risk of lower interest rates. Other parties that use interest rate agreements are speculators who only want to bet on future changes in interest rates. [2] Development swaps of the 1980s offered organizations an alternative to FRAs for protection and speculation. In the example, after the increase in interest rates from the contractual rate of 6.25%, the buyer receives from the seller the amount of compensation to offset the higher cost of the debt. The defect pays if the interest had fallen, the buyer would have had to pay the amount to the seller to reward him for the lower-than-expected return on potential investments. Equation 1.1 is set so that a positive settlement amount determines the seller`s payment to the buyer; on the contrary, a negative value encourages the buyer to pay the seller. The investor with the sale of an FRA guarantees a future return on the amount invested, always by paying a fee. For example, a company needs $1,000,000 in capital in 4 months for a period of 6 months. The company, to cover changes in the stewardship rates of these 4 months, buys a forward rate agreement that guarantees the loan of 1,000,000 dollars for 6 months in 4 months, at an interest rate, for example. B of 12.375%. The company also pays a tax of 0.25% for the 10 months of the contract in order to obtain this type of agreement. This eliminates the risk of future costs.

Contract rate: the interest rate set by the FRA agreement. Reference rate: the base market rate used when setting the billing amount. Amount of compensation: the amount paid by one party to another at the time of the count and calculated on the difference between the contract and the reference rates. Interest rate futures contracts are accompanied by short-term futures contracts.