Settlement amount for a Forward Rate Agreement (FRA) formula

Tags: financial instruments interest rate derivatives money market

Description of the Settlement amount for a Forward Rate Agreement (FRA) formula

This formula allows calculating the settlement amount due at an FRA's settlement date.

S = C \cdot \frac{(r_{s e t} - r_{f r a}) \cdot \frac{(d_{m t y} - d_{s e t})}{d b a s e}}{1 + (\frac{(d_{m t y} - d_{s e t})}{d b a s e} \cdot r_{s e t})}

C

Notional principal amount

d_{b a s e}

Number of days per year (360, 365 or 366 depending on )

d_{m t y}

Maturity date of the FRA

d_{s e t}

Settlement date of the FRA

r_{f r a}

FRA contract rate

r_{s e t}

Settlement rate

S

Settlement amount