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The rates of interest on the loan reprices every 6 months. The corporation is worried that the interest rate may be much higher in six months. The corporation could purchase a forward rate arrangement (FRA), which is an agreement to pay a fixed rate of interest 6 months after purchases on a notional amount of money.
If the rate is lower, the corporation will pay the distinction to the seller. The purchase of the FRA serves to minimize the uncertainty worrying the rate boost and stabilize earnings. Derivatives can be used to acquire risk, rather than to hedge against threat. Therefore, some people and organizations will enter into an acquired agreement to hypothesize on the worth of the hidden possession, betting that the party looking for insurance coverage will be wrong about the future worth of the underlying asset. https://rylanbixo111.mozello.com/blog/params/post/3485283/see-this-report-on-what-do-you-do-with-a-finance-degree |
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