Product description
FRA (Forwared Rate Agreement) is useful if you want to fix the interest rate of your future deposit or loan in situations, where you expect an unfavorable change in interest rates (i.e. decrease for deposits and increase for loan) in the relevant time window.
On the day of the deal (time t) a fixed interest rate is agreed which is 2 days before the actual commencement of the term of your loan or deposit compared to the floating market interest rate, the so-called reference rate determined on the basis of the IBOR market rate for the given period (e.g. 3M EURIBOR or 12M EURIBOR).
FRA settlement means a hypothetical exchange of interest payments between the parties, with the first of the payments being derived from the current floating interest rate and the second payment being determined on the basis of the agreed fixed FRA rate. The conducted FRA takes the form of a compensation payment on the day of the commencement of the FRA period, i.e. 2 working days after the fixation.
The principal is never exchanged, it only serves as the basis for the calculation of the lump sum (one-off) compensation payment which is equal to the difference between the interest mentioned above.
The most liquid FRA deal market is between 3 and 24 months. However, neither its minimum nor maximum period is defined.
Terms of service
- Accounts in the relevant currencies (limited by the scope of the foreign exchange list of LBBW Bank CZ a.s.).
- The minimum notional amount of the deal is CZK 50,000,000 or an equivalent in a foreign currency.
- Master Agreement on Treasury Trades.
- Credit line designed for Treasury transactions.
