In
business and
contract law
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to ...
, a forward-forward agreement (FFA) is a form of
forward rate agreement In finance, a forward rate agreement (FRA) is an interest rate derivative (IRD). In particular it is a linear IRD with strong associations with interest rate swaps (IRSs).
General description
A forward rate agreement's (FRA's) effective descrip ...
in which party ''A'' agrees to lend party ''B'' the ''m
1'' amount of money, at future time ''t
1''. In return, ''B'' will pay to ''A'' a larger monetary amount ''m
2'' at time ''t
2 > t
1''. The name "forward-forward agreement" derives from the fact that both issuing and repayment of the loan take place in the future. A regular forward rate agreement lends the money at once. A quoted
forward rate
The forward rate is the future yield on a bond. It is calculated using the yield curve. For example, the yield on a three-month Treasury bill six months from now is a ''forward rate''..
Forward rate calculation
To extract the forward rate, we ...
is associated with every forward-forward agreement. This can be thought of as the
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, t ...
earned by party ''A'' for lending the money to ''B''.
See also
*
Futures contract
In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
*
Forward contract
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivat ...
*
Arbitrage
In economics and finance, arbitrage (, ) is the practice of taking advantage of a difference in prices in two or more markets; striking a combination of matching deals to capitalise on the difference, the profit being the difference between t ...
References
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Business terms
Derivatives (finance)