These are short-term contracts. FRAs give an opportunity to a company to protect itself against interest risk by fixing the effective rate of interest before intended borrowing or deposit date. There are two parties, agree to exchange the difference between the market rate of interest on the contract’s effective date and the fixed rate prescribed in the contract. If a company wishes to guarantee its future borrowing costs, it will buy an FRA. On the other hand, if it wants to guarantee its rate of return on a future deposit, it will sell an FRA.