Forward Rate Agreement (FRA) Payoff Calculator

Position

Long gains if market rate > contract rate.

Currency

Decimals

Notional Amount

Contract Rate (% p.a.)

Reference Rate (% p.a.)

Day Count Cash settles at start of period

Input Mode

Enter Days

Use Dates

Days in Period

How it works

The cash settlement at the start of the loan period is:

Payoff = Notional × (R_ref − K) × Δ  ÷  (1 + R_ref × Δ)

where:
  K      = contract rate
  Rref   = published reference rate for the period
  Δ      = day count fraction
  Long   = payoff as above (positive if Rref > K)
  Short  = −(Long payoff)

Rates are per annum in percent. Δ depends on the selected day count basis. Settlement is discounted by the reference rate for the period.

Frequently Asked Questions

1) What is a Forward Rate Agreement?

An FRA is a contract that locks a future borrowing or lending rate for a specified notional and period. The contract is cash settled at the start of that period.

2) Which side is long and which is short?

The long position benefits when the market reference rate is above the contract rate. The short position benefits when the market reference rate is below the contract rate.

3) Why is the payoff discounted?

Cash settlement occurs at the beginning of the loan period. The interest differential for the whole period is therefore discounted back using the reference rate for that same period.

4) Which day count should I choose?

Money market FRAs typically use ACT/360. Some markets use ACT/365. 30/360 is common in bonds. ACT/ACT is available for completeness. Always match the convention of the referenced rate.

5) Can I enter dates instead of days?

Yes. Switch to the Use Dates mode and supply start and end dates. The calculator computes the number of days and applies the chosen basis to obtain the year fraction.

6) What does a negative payoff mean?

A negative value indicates a loss for the selected position. If you chose long and the result is negative then the market rate was below the contract rate.

7) Are the results guaranteed to match dealer quotes?

Dealer implementations may round differently or use a specific ACT/ACT variant. This tool uses precise arithmetic with configurable decimals but small differences can occur.

Built for education and professional planning. Always verify with your trading desk conventions.

How it works

Frequently Asked Questions

1) What is a Forward Rate Agreement?

2) Which side is long and which is short?

3) Why is the payoff discounted?

4) Which day count should I choose?

5) Can I enter dates instead of days?

6) What does a negative payoff mean?

7) Are the results guaranteed to match dealer quotes?

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