FORWARD INTEREST RATE AGREEMENT Definition

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FORWARD INTEREST RATE AGREEMENT is where two entities agree to a fixed interest rate in the future. If the actual rate is different than the fixed rate, one party will pay the other party the present value of the difference between the interest cash flows. Essentially the two entities are gambling on which way the interest rate of an index will change. These contracts are not traded on an established exchange but rather are private contracts between parties.

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