FRA

CFA Level III Derivatives
#1

Can someone please explain why “a lender that uses an FRA is taking considerable risk that the loan will not even be made”. I thought that once FRA is signed, there is no option not to provide the loan, therefore i couldn’t understand why the loan wouldn’t be made.

Thanks

#2

FRA could have counterparty risk, but I’m not sure I understand the context of your sentence!

#3

OP,

FRA is used to hedge, usually an upcoming loan hence FRA. If lender expects a loan he might purchase a FRA, but…runs “considerable risk that the loan will not even be made”