An over-the-counter (OTC) forward contract on a short-term interest rate. The buyer of an FRA commits to pay a fixed rate of interest on some notional amount that is never actually exchanged. The seller of an FRA agrees notionally to lend a sum of money to a borrower at a floating interest rate. Only the difference in rates is actually settled on the effective date. FRAs can be used either to hedge interest rate risk or to speculate on future changes in interest rates.
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
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