A fixed rate forward/forward non-deliverable deposit/loan transaction, settled in cash with an agreed upon process for calculating the market reference at the commencement of the forward/forward period, is called:
A) an interest rate swap
B) a forward rate agreement
C) a short term interest rate future
D) an interest rate collar

Question

Quizplus · Accepted Answer

The description given in the question is that of a forward rate agreement (FRA). A FRA is a cash-settled forward contract between two parties who agree to exchange a fixed interest payment on a notional amount at a specified future date, based on a specified interest rate index. The agreed upon process for calculating the market reference at the commencement of the forward period is known as the fixing date, and this is the date on which the interest rate used to determine the settlement amount is determined.

A Fixed Rate Forward/forward Non-Deliverable Deposit/loan Transaction, Settled in Cash