In other words, a term interest rate agreement (FRA) is a tailor-made, non-payment financial futures contract on short-term deposits. An FRA transaction is a contract between two parties for the exchange of payments on a deposit, the so-called nominal amount, which must be determined on the basis of a short-term interest rate called the reference rate, over a period predetermined at a future date. Fra transactions are recorded as hedges against changes in interest rates. The buyer of the contract blocks the interest rate to guard against a rise in interest rates, while the seller protects against a possible fall in interest rates. At maturity, no money exchanges hands; on the contrary, the difference between the contractual interest rate and the market price is exchanged. The buyer of the contract is paid if the published reference rate is higher than the contractually agreed fixed rate and the buyer pays to the seller if the published reference rate is lower than the contractually agreed fixed rate. A company that wants to hedge against a possible rise in interest rates would buy FRAs, while a company that seeks to hedge interest rates against a possible drop in interest rates would sell FRAs. The impartiality assumption indicates that the date exchange rate is an impartial preacher for the future spot exchange rate, under conditions of rational expectations and risk neutrality. In the absence of the introduction of a foreign exchange risk premium (based on the risk neutrality assumption), the following equation illustrates the impartiality hypothesis.     In practice, premiums and discounts are expressed as an annualized percentage of the spot price, in which case it is necessary to take into account the number of days until delivery as in the example below.  The following equation presents the forward rate as equal to a spot price and a risk premium (not to be confused with a forward premium):  Futures reduce your risk compared to currency fluctuations and currency fluctuations. By insuring prices now, you can certainly plan ahead and know what your cost of buying and selling abroad will be – especially useful for small businesses that need to keep cash flows predictable and easy to manage. In the financial field, an interest rate agreement in advance (FRA) is an interest rate derivative (IRD).