pacmandefense

If some particular scenarios are confusing, always fall back on the fundamentals.

FRA is essentially a forward contract to borrow or lend money at a certain rate in the future the contract date. And we know that in a forward contract, both parties are OBLIGATED to execute their duties at the contract date. Hence, settlement is always done at the contract date, including FRA.

And since the interest cost/savings would only happen at the end of the loan term (30 days LIBOR etc), the payment at settle is always the present value of the interest difference.