Managing Interest Rate Risk with Forwards and Futures, or FRA

Correct! Borrowers tend to know when they will need to borrow. Lenders can estimate, but generally do not know for sure the plans of borrowers. So lenders can find themselves hedging for no reason and are therefore less likely to use an FRA.

Which of the following statements is accurate regarding forward rate agreements (FRAs)?

Incorrect. A series of FRAs set today will lock in a separate FRA rate for each FRA. This is based on the yield curve.

Incorrect. FRAs are much more flexible than futures contracts as far as timing is concerned, which is why an FRA can be used as an effective hedge against interest rate changes while futures contracts generally cannot be.

Lenders are less likely to use FRAs than borrowers

A series of FRAs set today will lock in the same rate

A series of FRAs is identical to a set of futures contracts