Can a FRA be used to lock in an interest rate on future investments?
A. Yes. Clients are able to use FRA’s to lock in a fixed interest rate on expected investment interest returns. For example, XYZ Corporation has an investment due to roll in three months time for a further period of six months. Concerned that interest rates are falling, they want to secure a fixed return for that period. XYZ enters into a six month FRA today, commencing in three months time and maturing in nine months as the receiver of the fixed rate.
