新西兰Finance作业：How banks manage risk by monetary loan policy a(3)

4.2.2 Forward interest rate swap

Forward interest rate agreement is an agreement agreed upon between the parties to the transaction in order to evade the risk of future interest rate fluctuations or to speculate on future fluctuations in interest rates (Delis & Kouretas, 2011). What needs to be emphasized is that forward interest rate agreement itself does not cause any lending. At the settlement date, both parties only pay attention to the actual interest rate. In accordance with the difference between the actual interest rate and the contract interest rate, the losing party will pay the winning party a cash sum. Forward interest rate agreement is mainly used for long-term interest rate protection, which allows banks to lock interest rates of a single cash flow occurring at a specific point in the future, thus reducing the interest rate risk. Compared with interest rate futures, forward interest rate agreements are not traded in exchanges, they have no fixed share standards and settlement dates, and are more flexible than standardized futures contracts; but because forward rate agreements are over-the-counter transactions, compared to futures and options, they have larger credit risk.

 

References

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