Forward Rate Agreement
Acronym:
FRA
An over-the-counter (OTC) contract that requires one party to pay the difference between the agreed forward rate and the relevant rate of interest on the specified fixing date. An FRA is similar to a futures contract and is used to hedge future interest rate exposure, but the tenor of the contract is bespoke to that specific contract. On a futures contract, the tenor is fixed by the exchange on which the futures contract is traded.