FRA Payoff ( Long Position ) Calculator

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✖Notional Principal is the nominal or face value of a financial instrument, representing the amount used to calculate payments and obligations but not necessarily exchanged.ⓘ Notional Principal [NP]			+10% -10%
✖Underlying Rate at Expiration refers to the benchmark reference value upon which the terms of a derivative contract are based when the contract reaches its maturity date.ⓘ Underlying Rate at Expiration [r_exp]			+10% -10%
✖Forward Contract Rate is the agreed-upon price at which two parties agree to exchange an asset or currency at a future date, regardless of the prevailing market rate at that time.ⓘ Forward Contract Rate [r_forward]			+10% -10%
✖Number of Days in Underlying Rate refers to the duration or period over which the interest rate is observed or measured within a financial contract or calculation, typically expressed in days.ⓘ Number of Days in Underlying Rate [n_ur]			+10% -10%

✖FRA Payoff is the net settlement amount exchanged between the parties at the expiration of the agreement.ⓘ FRA Payoff ( Long Position ) [FRA_p]

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FRA Payoff ( Long Position ) Solution

STEP 0: Pre-Calculation Summary

Formula Used

FRA Payoff = Notional Principal*(((Underlying Rate at Expiration-Forward Contract Rate)*(Number of Days in Underlying Rate/360))/(1+(Underlying Rate at Expiration*(Number of Days in Underlying Rate/360))))
FRA_p = NP*(((r_exp-r_forward)*(n_ur/360))/(1+(r_exp*(n_ur/360))))
This formula uses 5 Variables

Variables Used

FRA Payoff - FRA Payoff is the net settlement amount exchanged between the parties at the expiration of the agreement.
Notional Principal - Notional Principal is the nominal or face value of a financial instrument, representing the amount used to calculate payments and obligations but not necessarily exchanged.
Underlying Rate at Expiration - Underlying Rate at Expiration refers to the benchmark reference value upon which the terms of a derivative contract are based when the contract reaches its maturity date.
Forward Contract Rate - Forward Contract Rate is the agreed-upon price at which two parties agree to exchange an asset or currency at a future date, regardless of the prevailing market rate at that time.
Number of Days in Underlying Rate - Number of Days in Underlying Rate refers to the duration or period over which the interest rate is observed or measured within a financial contract or calculation, typically expressed in days.

STEP 1: Convert Input(s) to Base Unit

Notional Principal: 50000 --> No Conversion Required
Underlying Rate at Expiration: 52 --> No Conversion Required
Forward Contract Rate: 50 --> No Conversion Required
Number of Days in Underlying Rate: 96 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

FRA_p = NP*(((r_exp-r_forward)*(n_ur/360))/(1+(r_exp*(n_ur/360)))) --> 50000*(((52-50)*(96/360))/(1+(52*(96/360))))

Evaluating ... ...

FRA_p = 1793.72197309417

STEP 3: Convert Result to Output's Unit

1793.72197309417 --> No Conversion Required

FINAL ANSWER

1793.72197309417 ≈ 1793.722 <-- FRA Payoff

(Calculation completed in 00.004 seconds)

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Indian Institute of Technology, Indian School of mines, Dhanbad (IIT ISM Dhanbad), Dhanbad

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FRA Payoff ( Long Position ) Formula

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What is FRA Payoff (Long Position) ?

The Forward Rate Agreement (FRA) payoff for a long position refers to the cash settlement received by the party holding the long position in an FRA at the contract's expiration. This payoff is calculated based on the difference between the Settlement Rate and the Contracted Forward Rate, multiplied by the Notional Amount and adjusted for the number of days in the contract period. If the Settlement Rate exceeds the Contracted Forward Rate, indicating that interest rates have risen, the long position holder will receive a positive payoff, representing a gain on the agreement. Conversely, if the Settlement Rate is lower than the Contracted Forward Rate, indicating that interest rates have fallen, the long position holder will incur a negative payoff, representing a loss on the agreement. The FRA payoff formula takes into account these factors to determine the financial outcome for the long position holder at the FRA's maturity.

How to Calculate FRA Payoff ( Long Position )?

FRA Payoff ( Long Position ) calculator uses FRA Payoff = Notional Principal*(((Underlying Rate at Expiration-Forward Contract Rate)*(Number of Days in Underlying Rate/360))/(1+(Underlying Rate at Expiration*(Number of Days in Underlying Rate/360)))) to calculate the FRA Payoff, The FRA Payoff ( Long Position ) represents the cash settlement amount received by the party holding the long position in a Forward Rate Agreement (FRA) at the expiration of the agreement. FRA Payoff is denoted by FRA_p symbol.

How to calculate FRA Payoff ( Long Position ) using this online calculator? To use this online calculator for FRA Payoff ( Long Position ), enter Notional Principal (NP), Underlying Rate at Expiration (r_exp), Forward Contract Rate (r_forward) & Number of Days in Underlying Rate (n_ur) and hit the calculate button. Here is how the FRA Payoff ( Long Position ) calculation can be explained with given input values -> 1793.722 = 50000*(((52-50)*(96/360))/(1+(52*(96/360)))).

FAQ

What is FRA Payoff ( Long Position )?

The FRA Payoff ( Long Position ) represents the cash settlement amount received by the party holding the long position in a Forward Rate Agreement (FRA) at the expiration of the agreement and is represented as FRA_p = NP*(((r_exp-r_forward)*(n_ur/360))/(1+(r_exp*(n_ur/360)))) or FRA Payoff = Notional Principal*(((Underlying Rate at Expiration-Forward Contract Rate)*(Number of Days in Underlying Rate/360))/(1+(Underlying Rate at Expiration*(Number of Days in Underlying Rate/360)))). Notional Principal is the nominal or face value of a financial instrument, representing the amount used to calculate payments and obligations but not necessarily exchanged, Underlying Rate at Expiration refers to the benchmark reference value upon which the terms of a derivative contract are based when the contract reaches its maturity date, Forward Contract Rate is the agreed-upon price at which two parties agree to exchange an asset or currency at a future date, regardless of the prevailing market rate at that time & Number of Days in Underlying Rate refers to the duration or period over which the interest rate is observed or measured within a financial contract or calculation, typically expressed in days.

How to calculate FRA Payoff ( Long Position )?

The FRA Payoff ( Long Position ) represents the cash settlement amount received by the party holding the long position in a Forward Rate Agreement (FRA) at the expiration of the agreement is calculated using FRA Payoff = Notional Principal*(((Underlying Rate at Expiration-Forward Contract Rate)*(Number of Days in Underlying Rate/360))/(1+(Underlying Rate at Expiration*(Number of Days in Underlying Rate/360)))). To calculate FRA Payoff ( Long Position ), you need Notional Principal (NP), Underlying Rate at Expiration (r_exp), Forward Contract Rate (r_forward) & Number of Days in Underlying Rate (n_ur). With our tool, you need to enter the respective value for Notional Principal, Underlying Rate at Expiration, Forward Contract Rate & Number of Days in Underlying Rate and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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