[Verse 1] Picture a contract made today For borrowing money in three months' time The rate gets locked, but we must weigh What's fair before we sign the dotted line Banks shake hands on future rates But who wins when the market fluctuates? [Chorus] No arbitrage keeps it clean Calculate what fair should mean Long position wins when rates climb high Short position profits when they slide FRA settlement, mark to market No free lunch in banking's target [Verse 2] Notional principal stays put Just the interest difference flows If market rate exceeds our foot- Print rate, the long position glows Settlement discounted back Present value fills the gap [Chorus] No arbitrage keeps it clean Calculate what fair should mean Long position wins when rates climb high Short position profits when they slide FRA settlement, mark to market No free lunch in banking's target [Bridge] Take the reference rate today Subtract the fixed rate we agreed Multiply notional, then weigh Against the discount factor's feed Days over three-sixty base Settlement finds its proper place [Verse 3] Pricing formula's crystal clear Forward rate equals spot plus spread Bootstrap the curve, make premiums disappear Arbitrage opportunities drop dead Market makers quote both ways Risk management always pays [Chorus] No arbitrage keeps it clean Calculate what fair should mean Long position wins when rates climb high Short position profits when they slide FRA settlement, mark to market No free lunch in banking's target [Outro] Forward rate agreements dance Between the present and tomorrow No arbitrage gives us our chance To price without financial sorrow
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