[Verse 1] Sarah's got a loan due in six months time Floating rate today but she's terrified it'll climb Forward Rate Agreement, that's her saving grace Lock tomorrow's interest at today's embrace FRA dealer quotes her three point seven five For the rate six months from now, keeps her dreams alive [Chorus] Forward Rate Agreement, FRA for short Hedge against the future, build your rate support Pay fixed, receive floating when rates climb too high Receive fixed, pay floating when the rates dive by Lock it down today for tomorrow's game FRA protection, remember the name [Verse 2] Contract specifies the notional amount Settlement date and period, every detail counts Reference rate is LIBOR, that's the benchmark here Compare it to your FRA rate when settlement draws near If market rate exceeds what you agreed to pay Cash settlement covers the difference that day [Chorus] Forward Rate Agreement, FRA for short Hedge against the future, build your rate support Pay fixed, receive floating when rates climb too high Receive fixed, pay floating when the rates dive by Lock it down today for tomorrow's game FRA protection, remember the name [Bridge] Calculate the payoff, here's the magic spell Notional times rate difference, time fraction as well Discount back to settlement, present value's key Interest rate risk vanishes, uncertainty flees [Verse 3] Banks and corporations, treasurers unite Using FRA contracts to sleep well at night No exchange of principal, just the rate spread Cash flows are predicted, no more lying awake in bed [Chorus] Forward Rate Agreement, FRA for short Hedge against the future, build your rate support Pay fixed, receive floating when rates climb too high Receive fixed, pay floating when the rates dive by Lock it down today for tomorrow's game FRA protection, remember the name [Outro] Interest rate certainty in uncertain times FRA contracts, your financial rhymes
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