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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 greater in six months. The corporation could purchase a forward rate contract (FRA), which is an agreement to pay a fixed rate of interest six months after purchases on a notional quantity of money.
If the rate is lower, the corporation will pay the distinction to the seller. The purchase of the FRA serves to decrease the unpredictability concerning the rate increase and stabilize profits. Derivatives can be used to get danger, rather than to hedge versus danger. Hence, some people and institutions will enter into an acquired agreement to speculate on the worth of the hidden property, wagering that the celebration seeking insurance coverage will be incorrect about the future value of the hidden asset. http://augustovtv251.bravesites.com/entries/general/getting-the-how-many-years-can-you-finance-a-car-to-work |
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