Financial Derivatives MBA Lecture 4 | Forward Rate Agreement (FRA)

What is a Forward Rate Agreement (FRA)? Learn the FRA definition, how FRA 3×9 works and how to calculate the net settlement amount, with two solved numericals. Financial Derivatives (KMBFM005), Lecture 4 for MBA 2nd Year. A Forward Rate Agreement is a contract in which two parties lock in an interest rate for a future period on a notional principal. In this lecture we recap forward contracts, define the FRA, understand the FRA notation (3×9, 6×12, 9×12), and solve numerical examples where a company borrows after 3 months for 6 months and hedges its interest rate risk with an FRA. Net settlement = Notional principal × (Actual rate − FRA rate) × (period ÷ 12), discounted at the actual rate. 📚 Topics covered: Recap: forward contract basics and interest rate forward contracts FRA definition and meaning (buyer and seller of an FRA) FRA example: borrowing after 3 months for 6 months FRA notation: 3×9, 6×12, 9×12 Numerical 1: buy FRA 3×9 at 10%, actual rate 12%: net settlement paid by the FRA bank Discounting the settlement amount Numerical 2: actual rate 7%: net settlement paid to the FRA bank ⏱️ Chapters: 0:00 Welcome 0:11 Interest rate forward contracts 0:24 Recap: forward contract basics 5:03 Interest rate forward contracts (FRA) 7:05 FRA: definition and meaning 12:45 FRA example: borrowing in 3 months 16:34 FRA notation: 3×9, 6×12, 9×12 20:21 Numerical: buy FRA 3×9 at 10% 22:33 Net settlement: actual rate 12% 27:07 Discounting the settlement amount 30:16 Numerical 2: actual rate 7% 33:27 Summary and thank you 🎯 Who is this for? MBA / PGDM and finance students, commerce students, and anyone learning derivatives from scratch. ◀️ Previous lecture (Lecture 3: Forward Contracts, Currency Forwards & FRA): [paste link] ▶️ Next lecture: [paste link] 📋 Full Financial Derivatives playlist: [paste link] 👨‍🏫 About the teacher: Vivek Singh Rana, Assistant Professor (Finance). Finance lectures for MBA and BBA students. 👍 If this lecture helped, like the video, subscribe to the channel, and share it with your classmates. Ask your doubts in the comments and I'll reply. #ForwardRateAgreement #FinancialDerivatives #MBA