Forward Signed Arrangement with airSlate SignNow

Forward signed arrangement

hello this is David Harper a banach turtle with an illustration of the forward rate agreement which is an over-the-counter contract that allows the buyer or borrower to lock in an interest rate and in this example I'm going to use just one of many different variations I will assign forward rate agreement three and the nine refer to months that are associated with the contract and as the buyer of the forward rate agreement I am locking in a LIBOR rate let's say of three percent a little higher than it is currently now LIBOR stands for London interbank offer rate so as the buyer of the forward rate agreement I want to lock in a rate of three percent and so we can initiate the contract today the three refers to the fact that the contract expires in three months such that if we go forward three months in time then the contract expires and both I is the buyer and my counterparty who's short the rate we both check the 180 day LIBOR rate that is prevailing at that time 180 days is six months and so you can see the three by nine refers to contract expires in three months and then nine months from initiation of the contract is when this contract would settle in arrears so nine minus three is six months at three months when the contract expires we check the prevailing six-month LIBOR rate and that means that if the contract were to settle in arrears we could go forward another six months and determine which counterparty owes the other car pound counterparty excuse me a net interest payment and so that's why we call it a three by nine the other tricky thing about this is that when the contract expires at three months we're going to know the prevailing six month LIBOR rate we're going to know whether the rate went up or down and whether I is the buyer I'm going to receive a net interest payment or pay a nest interest payment if I were to settle in another six months forward or nine months from initiation and so we don't need to wait that long we can present value this net settlement back to the three-month period or the contract expiration and so finally what we said is this three by nine forward rate agreement expires in three months based on an anticipated net interest payment in nine months but we can conduct that net settlement at three months so the exchange of cash will be made here at the expiration of the contract or three months and so let's look at an example here where I've assumed a notional of 1 million dollars why do I call it a notional because we're not going to actually exchange the principle we're just going to use the notional and compute the interest paid or received based on the notional and in this case as the buyer I'm going...